Aligarh Muslim Universityir.amu.ac.in/11786/1/T10306.pdf · i ANNEXURE-I CANDIDATE’S DECLARATION I, ZEBA NAZ, Department of Aligarh Muslim University certify that the work embodied

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ANNEXURE-I

CANDIDATE’S DECLARATION

I, ZEBA NAZ, Department of Aligarh Muslim University certify that the work embodied in this PhD thesis is my own bonafide work carried out by me under the supervision of Dr. Saboohi Nasim at Aligarh Muslim University, Aligarh. The matter embodied in this PhD thesis has not been submitted for the award of any other degree.

I declare that I have faithfully acknowledge, give credit to and referred to the research workers wherever their works have been cited in the text and the body of the thesis. I therefore, certify that I have not willfully lifted up some other’s work, para, text, data, result etc. reported in the journals, books, magazines, reports, dissertations, theses etc., or available at web-sites and included them in this PhD. thesis and cited as my own work.

Date:………………………………………….. ( )

(ZEBA NAZ)

…………………………………………………………………………………………

Certificate from the Supervisor

This is to certify that the above statement made by the candidate is correct to the best of my/our knowledge.

Signature of the Supervisor…………………

Name & Designation Dr. Saboohi Nasim Associate Professor Department of Business Administration

(Signature of the Chairman of the Department with seal)

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CHAIRMAN

Certificate

This is to certify that Ms. ZEBA NAZ Department of Business Administration has

completed the following successfully which are required for the submission of a Ph.D

thesis as per University ordinance.

Completion of the course work.

Presentation of pre-submission seminar

Publication of at least one paper.

Date: (Signature of the Chairman of the Department)

Department of Business Administration, Faculty of Management Studies and Research Aligarh Muslim University, Aligarh. Phone: 2700920 (Exchange), EXT: 3580 (O)

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COPYRIGHT TRANSFER CERTIFICATE

Title of the thesis: Emotional Balancing and Organizational Change: A Study of Select Mergers and Acquisitions in India

Candidate’s Name: ZEBANAZ

Copyright Transfer

The undersigned hereby assigns to the Aligarh Muslim University, Aligarh copyright

that may exist in and for the above thesis submitted for the award of the PhD degree.

Signature of the Candidate

Note: However, the author may reproduce to authorize others to reproduce material

extracted verbatim from the thesis or derivative of the thesis for author’s personal use

provide that the source and the University’s copyright notice are indicated.

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Acknowledgement

In the name of Allah, the most Beneficent and Merciful, who has provided

me the strength for my research and has blessed me with the presence of many people,

who helped me in this endeavor.

First of all, I express my deep gratitude and feel highly indebted to thank my

supervisor Dr. Saboohi Nasim for her invaluable guidance and constant support

throughout the process of writing this thesis. She believed in me, and constantly

provided me with gentle nudging and encouragements. Her expert advice helped me

to develop my ideas, sharpen my arguments and writing. She has been a source of

inspiration and a role model whose guidance and relentless support helped me to not

only complete my research but also made me the scholar that I am today. I am

extremely grateful for her incomparable support throughout the research period even

when I was going to lose hope and felt low confidence. Her continued support,

optimism and suggestions have been a source of encouragement and immense

learning, which really helped me complete my research up to the expected standards.

I am grateful to Prof. Valeed Ahmad Ansari, Dean and Chairman, of the

Department of Business Administration (Aligarh Muslim University), who had been a

source of learning and encouragement. I am also grateful to Prof. Kaleem Mohammad

Khan for providing me valuable knowledge about research methods. I am also

indebted to all the other faculty members of the department. I am also thankful to the

university administration, chairman and Dean’s office for facilitating my official

works.

I am also thankful to Tanveer Alam, Athar Ali Khan, Mohd Danish, and my

friends Huma Iqbal, Mohd Asim, Mohsin, Gulzar, Obaid, Rida and Amrin who

helped me a lot in my data collection and facilitated my research work. I extend my

heartfelt gratitude to all the respondents of my questionnaire who provided

information which formed the basis of the research. My sincere thanks to those

endless lists of people who, in one way or the other, have helped me in this research

with contacts, information and material. Without your help, this thesis would not have

been of the same solidity and quality.

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My deepest and most sincere gratitude goes to my parents for their support and

cooperation. It is my aspiration that this work will serve as a tribute to them for the

inspiration I gained from them. I am grateful and honored that I received everlasting

support from my father – Rasheed Ahmad. I would like to thank my brothers Tariq

and Shariq Rasheed for their belief in me through the most obscure moments in my

career and helped me a lot during every stage of my life. My mother’s prayers have

been the spirit behind all my endeavors. My utmost support in my life and work has

been my husband – Md. Shakil Ahmad because of whom, I could whole-heartedly

pursue and successfully complete my research work. I, therefore, thank him for being

there by my side, whenever I needed his cooperation. For this and so much more, I

am grateful and honored beyond expression.

(ZEBA NAZ)

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1. INTRODUCTION

‘Change’ is a modification of the present situation (Vince and Broussine, 1996). It is

an attempt to move from a current state to a more desirable, improved state (Freese et

al, 2011; Koontz and Gomes, 2012). Organizational change, however, can be defined

as “the planned attempt by management to improve the overall performance of

individuals, groups, and the organization by changing the formation, activities, and

processes” (Kootnz and Gomes, 2012). Based on the classification of organizational

change, it can be distinguished as first order and second order change (Kuntz and

Gomes, 2012; Alas, 2007). Second order changes are transformational and radical

change that modifies the organization at its core (Kuntz and Gomes, 2012). Radical

change situations often elicit intense emotions, which come in the way of achieving

the desired outcomes of the change process. There are four dominant contemporary

examples of large-scale radical change, namely downsizing, restructuring, business

process re-engineering, and mergers and acquisitions (M&A’s) (Jacob et al, 2013;

Francis et al, 2003).

Reviews on organizational change literature have highlighted the need to

explore beneath and beyond change management to enhance change outcomes

(Graetz and Smith, 2010; Nasim and Sushil, 2011). The radical change context of

post-merger integration phase of M&A is a situation of high uncertainty which has a

negative effect on employee’s emotions (Bhal et al, 2009; Naz and Nasim, 2015).

However, studies in the area of radical change often ignore the significance of

employee’s emotions to navigate change (Mair and Thumer, 2005). Research

evidences prove that there is a growing interest in human resource (HR) aspect of

M&A (Birkinshaw et al, 2000; Cartwright and Schoenberg 2006; Creasy et al, 2009).

Recent studies have revealed that the emotional needs of the groups should be met for

rapid change to occur (Liu and Perrew, 2005; Moosholder et al, 2000; Yongmie and

Perrew, 2005), and that emotional balancing of employee emotions is an emerging

alternative to facilitate organizational adaptation during radical change (Huy, 2002a).

Emotional balancing, thus, refers to a group-level process involving the

combination of emotion-related activities intended to drive change and to induce

continuity in a group of people (Huy, 2002a). Since researchers in the past have

reiterated the critical role of middle managers during radical change situations, it

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becomes imperative to explore how management of emotions at the micro level

(middle level managers) affects organizational adaptation in radical change contexts

(Huy, 2002a; Naz and Nasim, 2015). The model of emotional balancing proposed

specifies three interrelated dimensions of a change process theory; middle managers

as the main actors, emotional balancing as the process, and organizational radical

change as the specific context.

Thus, research under consideration, is an attempt to study the role of middle

managers who act as change agents during radical change situation of post merger

integration phase, and explores how they maintain emotional balance. The study

delves deeper into the theoretical constructs of ‘employee emotions’, ‘emotional

balancing’ and ‘desired change outcomes’ and investigates their linkages using

triangulation method i.e. mix of both quantitative and qualitative methods. Besides

empirical analysis to validate the proposed research framework, suitable cases of

M&A have been selected for an in depth analysis. Finally, a validated research model

is proposed, based on the findings of this study, highlighting the implications for the

practitioners in the field.

1.1 Motivation For Research

Mergers and acquisitions are the most complex phenomenon than ever that frequently

failed to realize its potential (Teerikangas, 2010; King et al, 2004). Researchers in this

area tried to explain the abysmal statistics by analyzing the attributes of the deals that

worked and that didn’t. Post integration hurdles especially people and organizational

change issues are most cited reasons for M&A failure (Emmanouilides and Giovanis,

2006; Islam et al, 2012). Hence, it is becoming increasingly important for M&A

researchers to focus on human aspects of integration process. Although several studies

have tried to explore the human resource aspect of M&A (Kusstatscher, 2006; Keifer,

2005), there is hardly any study focusing on the micro level management of human

resource which may have a considerable bearing on change outcomes.

As a result, two major outputs have been envisaged from the study:

Proposing a conceptual framework based on emotional balancing by middle

managers in radical change contexts; and

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Empirical validation of the proposed framework highlighting the role of

middle managers for successful mergers and acquisitions.

1.2 Research Questions And Objectives

Based on the background of the research, following research questions have been explored for the study:

• What are the emotional responses of employees of organizations undergoing mergers and acquisitions activities?

• What is the role of middle level managers in managing these emotional responses in the post-acquisition period?

• What are the desired change outcomes during post-merger integration and how are they inter related?

• Does the emotional balancing by middle level managers affect the change outcomes? Do middle managers play a mediating role in balancing employee emotions during radical change context of post-merger integration?

• What is the linkage between the employee emotions, emotional balancing by middle managers and desired change outcomes?

Research objectives mentioned below are framed by keeping research questions as

guidelines:

1) 1) To study the extent of employee emotions during radical change context, in

general, and during post integration phase of M&A, in particular.

2) To study the role of middle managers in balancing employee emotions during

post-merger integration phase.

3) To identify the desired outcomes during radical change situation related to

M&A and study their inter-relationships.

4) To study the mediating role of emotional balancing by middle managers

during post-merger integration phase.

5) To suggest a validated research framework linking employee emotions,

emotional balancing and desired change outcomes during radical change

context of M&A.

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1.3 Scope Of The Study

Research shows that most M&A fail to meet the expectations set for them. The

failure could be in all the three phases of the acquisition- pre deal, during the

execution and post integration. The focus of the study is on the post-merger

integration phase. For the empirical study, the sample frame of M&A during

2007-2012 in India were selected, in order to ensure that the acquisition process

was completed and that the company was going through the post-acquisition

phase, by the time data was collected for the study.

Further, a set of criteria were adopted to make sure that the desired context of

radical change with a sizeable middle management could be found. For this,

mergers with deal value more than 500 mn USD and with 100 percent stake in the

acquired firms were selected. And companies where the acquirer was the parent

company itself i.e. parent acquiring its own subsidiary were excluded. Standard’s

and Poor Capital IQ database for M&A was referred to for the screening and short

listing of companies for data collection, the details and logic of which is explained

in detail in chapter 5. Finally six companies from the service sector- two each

from healthcare, financial and information technology sector- with M&A deals

completed by 2012 were selected for the quantitative study. Further, for the

qualitative study, three M&As were shortlisted, namely- Abbott- Piramal, Wipro-

Infocrossing and ICICI bank- Bank of Rajasthan for an in depth case analysis.

The method of data collection for the empirical survey has been

predominantly questionnaire based. The questionnaire was designed drawing

items from the literature and previous scales to capture the opinion of middle

managers. For case study, various sources have been used like published material,

electronic databases etc., besides using a case template used to collect the data

from respondents involved in the select M&A cases.

2 LITERATURE REVIEW

Given the theoretical constructs of the research an extensive review across areas like

organizational change, radical change, and employee’s emotions, emotional balancing

role of middle managers and mergers and acquisition literature has been undertaken.

At the outset, a conceptual review of the radical change context highlight the need for

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managing heightened employee emotions and the possible role of middle managers in

addressing them. Further, the domain of research being mergers and acquisition, an

insight into the basics of M&A in general and in India is presented in the subsequent

section. Next, the theoretical constructs of employee emotions during M&A and role

of middle management in the post-merger integration phase are explored and research

gaps are highlighted.

2.1 Organizational Change: A Conceptual Review

Research on organizational change is filled with several thoughts, theories and

models. Despite rigorous research in this field the success rate identified by the

scholars seems to be 1:3 (Beer and Nohria, 2000). A conceptual review is undertaken

to study organizational change and its consequences. The environmental pressures

and the demand to remain competitive for long term survival compel the

organizations to change itself (Liu and Perrewe, 2005). It can be categorized as

convergent and radical change (Kuntz and Gomes, 2012).

2.2 Radical Change: An Introduction

A radical or revolutionary transformation is viewed as “trigger events” (Kiefer, 2005)

that challenges organization member’s self-identity and creates high uncertainty about

their future roles and privileges, which elicits anxiety (Argyris, 1989). A

comprehensive review of the literature on ‘organizational change’ and ‘radical

change’ has been undertaken, to explore the underlying causes for ‘change failures’.

Studies on change management have attributed ‘resistance to change’ as the reason

behind such failures and have proposed various models and approaches to tackle it

(Huy, 2002a; Nasim and Sushil, 2010; Jacob et al, 2013).

2.3 Employee Emotions during Radical Change

The organizations transformation can provoke uncountable positive and negative

responses (emotional turmoil) from change recipients (Moosholder et al, 2000; Huy,

2002a). Emotions elicited by change are mostly negative that influence employees

openness to change (Kiefer, 2005; Huy, 2002; Sanchez- Burks and Huy, 2009). The

negative emotions recognized related to the causes include anger, resistance,

disappointment, anxiety, turnover intension, reduced performance, decreased trust and

commitment (Kiefer, 2005; Moosholder et al, 2000).

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2.4 Emotional Balancing by Middle Managers

Emotional balancing is a concept propounded by Huy (2002a) as a possible solution

for radical change situation facilitating the desired outcome of organizational adaption

by employees (Huy, 2002a). Organizational change needs intense human resource

management or people management which is expected from middle manager (Parris

et al, 2008). Huy (2002a) found that middle managers demonstrated two types of

emotion-management behaviors: (1) emotionally committing to personally-

championed change projects; and (2) attending to change recipients’ emotions. Based

on the study of several change projects, he concluded that low commitment to change

projects lead to organizational inertia whereas high commitment with low attending to

recipient’s emotions may result into chaos.

According to the first role given by Huy (2002a) i.e. emotionally committing

to personally championed change projects, middle managers approach towards change

can be identified. The degree of commitment by middle level managers is directly

proportional to the desired change outcomes (Teerinkangas, 2010). Middle managers

role of attending to recipient’s emotions (Huy, 2002a), is directly linked to their

commitment to change projects. A manager who is high on commitment tries to be

high on attending to his subordinates emotions too, resulting in desired group

behavior i.e. group adaptation. So middle managers act like facilitators and encourage

organizational actors i.e. employees to support change (Wooldridge et al, 2008).

2.5 Mergers and Acquisitions: A Conceptual Review of Research Domain

Mergers and Acquisitions (M&As), involve the integration of two organizations in to

one combined organization (Cartwright and Cooper, 1995). The key driving forces

leading towards mergers and acquisitions are environmental changes (Mittal and Jain,

2012). The way the acquisition process has been managed is the key challenge in

M&A success (Teerikangas et al, 2011). Researchers suggested that human factor

could be the most potential reason for failure of M&A (Emmanouilides and Giovanis,

2006; Cartwright and Cooper, 1993).

Employee Reactions and Behavior during M&A

M&A’s create most dramatic changes that people will experience in the organization

(Emmanouilides and Giovanis, 2006). Value creation is a most difficult task owing to

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integrating employees of merging entities (Mittal and Jain, 2012; Keifer, 2005;

Teerinkangas, 2010). Research which focused on negative impacts of change

addressed the following variables like survivor syndrome, injustice, fear of job loss,

decreased commitment towards management (Creasy et al, 2009), absenteeism, low

morale, job satisfaction(Islam et al, 2012) and motivation are prevalent during post

integration phase (Kiefer, 2005; Moosholder et al, 2000).

Middle Manager’s Efforts in Promoting the Acquisition towards Success

Top managements are primarily concerned with the financial aspects of the merger

and forget to take care of the employees affected by the changes (Emmanouilides and

Giovanis, 2006). ‘Emotional balancing of the employees’ by middle level managers

has been highlighted as a possible means of enhancing change outcomes (Huy, 2002a;

Nasim and Sushil, 2011). Middle managers or leaders who help people cope with the

change process and by attending to subordinate’s negative emotions, may cause a

positive shift in emotional responses facilitating smoother implementation (Huy,

2002a; Bhal et al, 2009).

Expected Synergies from M&A: Desired Change Outcomes/ Performance

Some scholars have pointed out that synergy potentials can be obtained by strategic

and organizational fit (Datta, 1991; Capron 1999; Gomes et al, 2013), but this can be

achieved entirely when the post integration phase is managed in an efficient manner

(Datta, 1991). Studies related to M&A performance have suggested different

parameters for measuring outcomes which could be either financial or non-financial

outcomes (Mittla and Jain, 2012, Datta, 1991; Schoenberg, 2006; Ouakauak et al,

2014). Mittal and Jain (2012) emphasized that financial outcome like profitability can

be easily improved if the other non-financial outcomes like operating, marketing and

human integration are achieved.

2.6 Mergers And Acquisitions In India

Mergers and Acquisitions (M&A’s) have been a prominent trend in the advanced

capitalist countries since the late nineteenth century (Ramakrishnan, 2010; Beena,

2004). But only in recent times it has become a regular phenomenon in ‘developing’

countries like India. The Indian evidence suggests that the new economic environment

of the nineties has facilitated M&As (Beena, 2004). Economic liberalization started in

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India after 1990 and the M&A activity in Indian sector has increased significantly

after the market reforms (Ramakrishnan, 2008).

A brief snapshot of recent trends and deal summary of M&A transactions in

India according to Grant Thornton (2016) is presented in Table 1(a) and 1(b).

Table 1(a): Deal Summary for M&A in India

Deal Summary Volume Value (US$ million) Year 2014 2015 2016 2014 2015 2016 Domestic 50 65 64 853 1484 2458 Crossborder 67 64 58 2479 5297 5904 Mergers and internal restructuring

9 2 7 1107 11 563

Total M & A 126 131 129 4439 6792 8925 Private equity 131 221 280 2004 2599 2959 Grand total 257 352 409 6443 9391 11884 Crossborder includes Inbound 43 29 24 1987 4728 3498 Outbound 24 35 34 492 569 2406 (Source: Grant Thornton, 2016)

Table 1(b): Recent Trends in M&A across Industries in India

Key sectors Value (US$ mn)

Ecommerce 22 292 IT & ITES 21 654

Banking & Financial Services 13 418 Manufacturing 12 855

Pharma, Healthcare & Biotech 10 804

Energy & Natural Resources 7 1,536 Telecom 4 1,745

(Source: Grant Thornton, 2016)

Given the backdrop of rising trends in volume and value of M&A deals in India, the

next logical question arises as to how these merging firms have performed in the long

run. Several researchers in the area of finance have been analyzing the financial

aspect of performance of mergers and acquisitions in India (Mittal and Jain, 2012;

Rani et al, 2012). While studies on post-merger performance of Indian companies are

few, researchers have attempted to identify synergies focusing more on the post-

merger financial performance of companies (Mittal and Jain, 2012, Rani et al, 2012).

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Studies focusing on the human aspect of M&A in Indian context are few.

Bhal et al (2009) indicated that most M&A fail to achieve the desired results

primarily due to employee’s uncertainty and anxiety. They have highlighted the role

of communication with the leader (either immediate or top management) in M&A and

have assessed it as a mediator of LMX (high- and low-quality leader-member dyads)

and employee reactions relationship. Further, case studies of mergers that collapsed

like Proctor and Gamble and Godrej, Grasim and L & T, Air India and Indian Airlines

reiterated the need for HR synergies in M&As (Islam et al, 2012).

Mergers and Acquisitions in India, thus, need a rigorous and comprehensive

research focusing on enhancing HR synergies. The concept of emotional balancing by

middle managers during M&A is a new and emerging theory in this regard. Given the

resource constraint on one hand and sensitive nature of M&A on the other, it is

imperative to explore the ways and means to enhance and facilitate the performance

and long term survival of M&A in India.

2.7 Research Gaps

The key learnings from the literature as synthesized above are indicative of the

limitations of the current body of knowledge in the area and point out the need for

additional research, which may be enumerated as follows:

Literature indicates the need to leverage the role of middle managers during

radical change context. However, very few researches have been conducted on

the role of middle managers during post-merger integration.

Although there are evidences in the literature regarding the need to focus on

human aspect of M&A but very few studies have addressed the micro level

management of human resource for smoother integration.

Emotional balancing role of the middle managers is an emerging area of

research. While few researches have indicated the importance in radical

change context, no specific study was found for the context of M&A.

Research related to M&A in India is scanty and largely focus on the financial

aspects. Although few studied were found which highlighting the significance

of managing employee emotions. There has been no empirical validation of

such a proposition, both in general and in the context of India.

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Despite decades of research, what impacts the financial outcomes of M&A

remains largely unexplored and unexplained. Hence, studying the inter

relationship among different M&A outcomes is pertinent.

Further, no prior research linking the role of middle managers, employee

emotions and desired change outcomes, has been found which a research

worthy proposition is undoubtedly. The need for such a validated framework

in M&A domain is more pronounced, given the low rate of success.

3 METHODOLOGY ADOPTED FOR THE STUDY

The purpose of this study is to develop the conceptual research model on the basis of

literature review and preliminary expert survey, and then to validate and interpret the model

with both empirical as well as in depth analysis of select cases. Thus the research is carried

out in five phases as discussed below:

Phase 1: Literature Review and Preliminary Groundwork

An extensive literature review has been done to identify the research variables, both in

general, as well as in the context of mergers & acquisitions. Expert’s suggestions

were taken to confirm the research variables as one of the variable i.e. ‘emotional

balancing by middle managers’ is new to the research domain. This was an important

step as it will confirm the importance of this research, showing the crucial role of

middle managers during post-merger acquisition.

Phase 2: Expert Survey for Validating Research Constructs

The information provided by the preliminary groundwork was used to further validate the

research constructs by conducting an expert survey. Validation of research constructs is done

for Indian context. Also, in this phase inputs from the domain experts were taken to formulate

a hierarchical relationship using ISM (Interpretive Structural Modeling) among the micro

variables of the dependent variable i.e. desired change outcomes. This has given a greater

clarity about the driving force of human factor in achievement other outcomes of the merger;

it is reported in chapter 4.

Phase 3: Empirical Survey for Hypotheses testing

The testing of hypothesis has been carried out through questionnaire based survey, by taking

the responses from middle managers of the acquired firms. The responses were actually a

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basis to test the hypotheses of association and thus validating the conceptual research

framework. A total of 215 middle managers responded to the questionnaire based on which

the empirical analysis have been undertaken to validate the research framework.

Phase 4: Case Study- In depth analysis of research Model

To interpret the research model, case study has been undertaken for select firms undergone

M&A. For this three cases will be undertaken, depicting successful and not so successful

merger. The justification for selecting the cases has been explained later in the chapter. For

case analysis a pre designed template is used for detailed interview of the senior middle level

managers of each case.

Phase 5: Triangulation and synthesis of results

In the last phase, the results from the empirical survey and insights from the case study have

been synthesized based on which a validated and triangulated model for change management

during M&A is proposed.

3.1 Research Variables

After a thorough analysis of the literature on organizational change and emotional

balancing, three broad sets of research constructs were identified mainly comprises of

‘employee’s emotions during change’, ‘emotional balancing by middle managers’ and

‘desired change outcomes’. Since the proposed constructs were derived from radical

change context other than M&A it was imperative to validate them by conducting a

preliminary survey from the experts in the domain of mergers and acquisitions.

The variables ‘employee emotions during change’ and ‘emotional balancing

by middle managers’ are hypothesized as independent variables and ‘desired change

outcomes’ as dependent variable. The list of macro constructs and the micro variables

constituting it are listed in table 2.

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Table 2: List of Macro and Micro Variables Used in the Research S.No Macro Variables Micro Variables References

1.

Employees Emotions During Change (EE) (4)

Reaction Towards Change Oreg, 2003; Dijk and Dick, 2009

Decreased commitment Islam et al (2012); Meyer and Allen (1997)

Loss of identity Keifer ,2005; Eriksson, 2004; Islam et al (2012); Holt et al, 2007;

Feeling of uncertainty Teerikangas, 2010; Huy, 2002; Bovey and Hede (2001); Milliken, 1987

2. Emotional Balancing by Middle Level Managers (EBM) (2)

Commitment to change projects

Huy 2002; Floyd and Wooldridge, 1992; Jaros, 2010

Attending to recipients emotions

Huy 2002; Floyd and Wooldridge, 1992

3.

Desired Change Outcomes (DCO) (3)

Desired Change Outcome (General Perception)

Holt et al, 2007

Financial Outcomes King et al, 2004; Rani et al, 2012; Datta, 1991; Ouakauak et al, 2014

Non-Financial Outcomes Antila, 2006; Gomes et al, 2013; Correia et al, 2013; Bartels et al, 2006

3.2 Conceptual Framework for Research

The basic assumption of this research, as drawn from the change management,

organizational behavior and merger & acquisitions literature, is that managing change

during post-merger integration can be better achieved by leveraging the role of middle

managers, who are simultaneously involved in balancing employee’s emotions. Three

broad sets of research construct namely- ‘Employee emotions during change’,

‘Emotional Balancing by Middle Managers’ and ‘Desired Change Outcomes’ have

been used, as explained above. The basic framework of this research is largely based

on the work of Q.N. Huy published in Administrative Science Quarterly in 2002,

which emphasized the emotional balancing role of middle managers in organizational

continuity and radical change.

This research attempts to explain the relationship between ‘employee’s

emotions’ and ‘desired change outcomes’ where ‘emotional balancing by middle

managers’ plays a mediating role. Thus, the broad conceptual framework for the

research hypothesizing possible linkage of the independent variable–‘Employees

emotions during change’, mediating variable- ‘Emotional balancing by Middle

managers’ and Dependent Variable-‘Desired change outcomes’, is depicted in Fig 1.

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Figure 1: Conceptual Research Framework

3.3 Research Propositions

Some of the broad assumptions about the relationships between constructs are

proposed and explained below:

Proposition 1- Emotional balancing by middle managers influence desired change outcomes i.e. smoother post-merger integration. ‘Emotional balancing by middle managers’ is considered as a potential solution for

radical change which facilitates or brings the desired outcome and leads to

organizational adaption by employees (Huy, 2002a). Past researches suggested that

middle managers can contribute to the change process by finding the right balance

between keeping the organization functioning and promoting radical change at the

same time (Huy, 2002a; Floyd and Wooldridge, 1992; Naz and Nasim, 2015). Hence,

it becomes imperative to validate the impact of ‘Emotional Balancing by middle

managers’ on ‘desired change outcomes’ in general and M&A in particular.

Figure2:1 Emotional Balancing affect Radical Change Outcomes

Proposition 2- Employees Emotions During Change Influences Desired Change Outcomes.

Employee’s emotions whether positive or negative have a significant influence on

desired change outcomes directly or indirectly (Huy, 2002a). The emotions expressed

by the employees reflect their perception about ongoing change programs

(Moosholder et al, 2000) and their impact on success or failure of change process

Emotional Balancing By Middle Managers: Commitment to

Change Project Attending to

Recipients Emotions

Employee’s Emotions during Change:

Reaction Towards Change Feeling of Uncertainty Decreased Commitment Loss of Identity

Desired Change Outcomes:

Financial Outcomes Non Financial

Outcomes General Outcomes

Emotional Balancing by Middle Managers

Desired Change

Outcomes

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(Kiefer, 2005). Negative emotions indicates that employee’s resistance and

unwillingness to support change (Kiefer, 2005), which can be detrimental for

employers as well (Fugate et al, 2008). Consequently, it may be proposed that

‘employee emotions’ can affect the ‘desired change outcomes’ in the case of M&A as

well.

Figure2.2: Employees Emotions Affect Desired Change Outcomes

Proposition 3: Emotional balancing by middle managers acts as a mediating variable

between employee emotions and desired change outcomes.

As mentioned by Huy (2002a), emotional balancing of individuals is essential during

radical change. Many researchers insisted that there is an obvious contribution of

middle managers in the acquisition process in a positive way (Herzig and Jimmieson,

2006; Bhal et al, 2009).Also it was evident that lack of involvement by middle

managers will create less awareness or negative impact on the employees

(Teerikangas, 2010; Kiefer, 2005), which can have a detrimental impact on the

change outcomes (Huy, 2002a).Thus, with this background it may be hypothesized

that ‘emotional balancing by middle managers’ play a mediating role between

‘employee emotions’ and ‘desired change outcomes’.

Figure 2.3: Emotional Balancing By Middle Managers Acts as a Mediating Variable

Employees Emotions

During Change

Desired Change

outcomes


Employee Emotions

during Change

Desired Change

Outcomes

15

3.4 Research Hypotheses

Hypotheses are framed on the basis of research objectives, propositions and the

conceptual model. First set consists of hypotheses for macro variables and the other

set comprises of hypotheses for micro variable. The hypotheses of association for

macro variables compare and test the conceptual framework as depicted in

3.4.1 Hypotheses of Association for Macro and Micro Variables

The hypothesis of association compares and test the conceptual framework as

depicted in figure 1. The macro hypotheses was formed with three sets of macro

variables namely ‘employee’s emotions during change’, ‘emotional balancing by

middle managers’ and ‘desired change outcomes’. Hypotheses for micro variables are

formed indicating that the independent variables are predictors of dependent

variables. In all, there are four macro and thirty six micro hypotheses for the study.

4 RESULTS AND FINDINGS

At the end of any research journey, it is critical to look back and analyze the key

objectives laid down at the very outset, in order to evaluate how much has been

achieved. A synthesis of the key findings of the research across different phases and

methodologies employed may be summarized in accordance with the objectives laid

down for the research, before highlighting the suggestions, implications and the

contributions made by the study.

4.2 Findings from the Preliminary Study (Expert Survey and ISM)

In the preliminary phase of the study, research variables were identified from the

literature and verified for the context based on expert opinion. All the variables of

‘employee emotions’ and ‘middle managers role’ identified from the literature were

strongly endorsed by the experts. Though eight variables of employees emotions were

identified for preliminary survey but since the variables were of repetitive nature, only

four variables of ‘employee emotions’ were considered and validated through expert

survey.

After the preliminary verification of change outcomes (financial and non-

financial) by the experts, the micro constituents of the broad outcome variables were

identified from the literature. Further, qualitative technique called ISM (Interpretive

16

Structural Modeling) is used to model the hierarchical relationships among the

outcomes, which is discussed in the next section.

4.2 Findings of ISM (Interpretive Structural Modeling)

ISM is a well-established methodology for identifying relationships among variables.

Five financial and four non-financial change outcomes were identified. For greater

insights into the hierarchical relationship among these nine change outcome variables,

ISM was undertaken. The results of ISM analysis highlighted the significance of the

non-financial outcome variable like ‘human integration’ and ‘cultural integration’

which emerged as the change drivers during the post-merger integration phase.

Figure 3: Interpretive Structural Model (ISM) - Change Outcomes affecting Post Merger

Acquisition in India

4.3 Findings from the Empirical Survey In this study cross sectional research design of survey method is used. The opinion

survey was conducted among 215 middle managers from six organizations that had

undergone M&A during the period 2007-12 in India. The key findings of the

empirical survey are summarized as follows:

Cash Flow

Stock Price

Earnings Per Share

Cultural Integration

Marketing Integration

Human Integration

Task Integration

Sales Growth

Return on Investment

17

For pre-testing, five experts were interviewed, using a pretesting template based

on the Questionnaire Appraisal System (QAS), after which the number of items in

the questionnaire reduced from 68 to 59.

Exploratory factor analysis was performed for confirming constructs for this

study. A factor loading of 0.50 has been used as a cut off for this research. Few

items having factor loading more than .50 were also dropped as they were found

to be repetitive and less significant. Thus it confirms 44 items for the final

analysis and eleven items were dropped.

The overall Cronbach’s Alpha value of the questionnaire is quite high (0.8),

indicating that the research instrument used is adequately reliable. The study is

basically about employee behavior which is difficult to predict, so a lower value

of alpha is also accepted as new scales are being attempted. The Cronbach’s

Alpha values of all the macro and micro variables are within the acceptable range,

that is, more than 0.5.

4.4 Major Findings of the Empirical Survey

Some of the key findings and conclusions of the survey are enumerated as follows:

An analysis of the univariate statistics of the macro variables of the study,

indicated higher mean and median values for the research constructs. This

reiterates our basic assumption that managing employee emotions are

heightened during radical change situations and that it warrants adequate

attention and hence need to be managed. The standard deviation and variances

are within permissible limits, indicating differing opinions and emerging

acceptance for emotional balancing. As regards the outcomes parameters, has

also been accorded greater acceptance

‘Emotional balancing by middle managers’ emerged as a significant predictor

of ‘desired change outcomes’. Regression analysis of controlled impact of

‘employee emotions during change’ and ‘emotional balancing by middle

managers’ explained greater variation for ‘desired change outcomes’, thus

validating the basic conceptual model of the research . The regression analysis

results of macro hypotheses are summarized in table 3(a).

Out of thirty six hypotheses relating micro independent variables to dependent

variables, fifteen were accepted and twenty five were rejected. Out of four

18

micro variables of employee emotions, ‘resistance to change’ and ‘decreased

commitment’ were found to be a predictor for ‘desired change outcomes’.

For ‘emotional balancing by middle managers’ three micro variables of

‘employee emotions during change’ (resistance to change, decreased

commitment and uncertainty) were found to be significant predictors.

‘Attending to recipient’s emotions’ (ATRE) and ‘commitment to change’

(CTC) emerged as the significant roles of middle managers as a predictor of

‘desired change outcomes’.

The mediating effect of ‘Emotional Balancing by Middle Managers’ on

‘Employee emotions during change ‘and ‘Desired change outcomes’, have

been statistically tested by adopting the methodology adopting Baron and

Kenny (1986) four step approach by using regression analysis (table 3b).

It was found that ‘Commitment to change’(a micro variable of ‘emotional

balancing by middle managers’) partially mediates between ‘resistance to

change’ and macro dependent ‘desired change outcomes’, ‘general outcomes’

and ‘non-financial outcomes’ at the micro level. Partial mediation effect of

‘attending to recipient’s emotions’ was found in the case of ‘uncertainty’ and

‘non-financial outcomes’. Thus, it may be concluded that both the roles of

middle managers are found to be mediating and facilitating the achievement of

‘desired change outcomes’ of M&A.

Table 3(a): Results of Hypotheses Testing of Macro Variables

Independent Variable

Dependent Variable R2 Sig

Value Beta

Value

Status Alternate of Hypotheses

Employee emotions during change


.001 .595 .036 Rejected

Desired Change Outcomes

.016 .064 -.126 Rejected

Emotional balancing by Middle manager


.333 .000 .577 Accepted

Employee Emotions during Change, Desired

Change Outcomes

.355

.008

-.148

Accepted Emotional Balancing by Middle Managers .000 .583

19

Table 3(b): Regression Analysis Summary for Testing Mediating Impact of Emotional Balancing by Middle Managers on Desired Change Outcomes


Steps Independent variables Dependent variables

R Square

Sig. value Beta Coeff.

Remarks

Desired Change Outcomes (Y)

Resistance to change as Employee emotions during change (X)

1 Resistance to change (X)

Commitment to change (M)

.022 .030 -.148 * partial mediation as sig value is reduced but significant

2 Resistance to Change (X) Desired change outcomes (Y)

.035 .006 -.186

3 Commitment to change (M) Desired change outcomes (Y)

.136 .000 .368

4 Resistance to change (X), Commitment to change (M)

Desired change outcomes (Y)

.153 .037 .000

-.134 .349

Desired Change General Outcomes (Y)

Resistance to change as Employee emotions during change (X) 1 Resistance to change

(X) Desired change General outcomes (Y)

.038 .004 -.194 *partial mediation

2 Resistance to Change (X) Commitment to change (M)

.022 .030 -.148

3 Commitment to change (M) Desired change General outcomes (Y)

.082 .000 .078


Desired change General outcomes (Y)

.106 .019 .000

-.155 .264

Desired Change Non FinancialOutcomes (Y)



Desired change Non Financial outcomes (Y)

.058 .000 -.241 *partial mediation 2 Resistance to Change (X) Commitment to

change (M) .022 .030 -.148

3 Commitment to change (M) Desired change Non Financial outcomes (Y)

.195 .000 .441


Desired change Non Financial outcomes (Y)

.226 .004 .000

-.180 .415

Desired Change Non Financial Outcomes

(Y)

Uncertainty as Employee Emotions during Change (X) 1

Uncertainty(X)

Desired Change Financial Outcomes (Y)

.025

.021

-.157

*Partial mediation

2

Uncertainty(X)

Attending to Recipient’s Emotions (M)

.025

.020

.159

3 Attending to Recipient’s Emotions (M)

Desired Change Financial Outcomes

(Y)

.299 .000 .547

4 Uncertainty(X), Attending to Recipient’s Emotions (M)


(Y)

.360 .000 .000

-.250 .587

20

4.5 Findings from Case Study Research

A case based analysis has been undertaken, in order to gain deeper insights about the

complexities of managing ‘employee emotions’ and its impact on change outcomes of

mergers and acquisitions. The integration of quantitative and qualitative methods has

been rare in the field of M&A. The broad objectives of case analysis may be listed as

follows:

To understand and interpret the validated model in real situations of post

integration phase for deeper insights on emotional balancing role of middle

managers and its likely impact on change outcomes.

To gain an in-depth understanding of the linkage between for improving the

M&A outcomes/ performance in Indian context by leveraging the role of

middle managers, in Indian context.

The case analysis starts with detailed background of the select M&A’s. Basic

information about the cases has been described by adopting SAP (Situation Actor

Process) Framework. In this study a case template is designed for conducting expert’s

interview to elicit responses from five key actors involved in the merger. Then, the

comparison of the cases is undertaken and the research model is validated.

The key findings may be summarized as follows:

Abbott faced least resistance from employees of Piramal and was able to

achieve a smoother integration. The company made employee friendly policies

to gain their commitment. The case survey showed a moderate presence of

‘middle managers role’ and achievement of intended outcomes. Human

integration was smoother which led to a peaceful organizational adaptation.

In case of Wipro, employees of acquired firm (Infocrossing) witnessed high

level of uncertainty and decreased commitment, despite the efforts to address

employee issues. The top management of the organization could not leverage

the role of middle managers which lead to a rather chaotic adaptation. The

expert survey showed that they are still struggling to achieve synergies.

ICICI bank initially faced intense employee resistance which was addressed

later by the involvement of middle managers; thus resulting in a smoother

organizational adaptation in the end. There was an improvement in the

21

financial performance after the acquisition but the trend showed a fall in the

growth rate.

Different practices were observed from the three M&A cases with regard to

middle manager’s role during post integration phase. The presence of middle

managers role was significant in case of ICICI bank as evident from the case

analysis, unlike Wipro where middle managers role was not leveraged

adequately and hence organizational adaptation was chaotic resulting in poor

performance. Abbott witnessed a smoother integration, which may be

probably due to significant role played by middle managers.

4.6 Methodological Triangulation

Methodological Triangulation refers to the use of more than one method for gathering

data and cross-checking the results obtained from them. A comparison of the results

obtained from different methodological approaches adopted in the study, is

summarized in Table 4.

Table 4: Methodological Triangulation Methods

Macro Variables

Preliminary Phase: Literature Review &

Expert Survey

Regression Analysis

(Empirical Survey Analysis)

Case Analysis

(Qualitative Analysis)


Out of 8 employee emotions identified from the literature validated by the Experts opinion and four variables merged/dropped.

• 3 out of four micro variables of employee emotions found significant (RTC DC and UN)

• All the four micro variables were signicant

• 2 were highly significant (RTC and DC)

• LI and UN also found significant

Emotional balancing by middle managers

2 micro variables identified from literature (ATRE and CTC)

• Both micro variable found significant (ATRE and CTC)


Desired change outcomes

9 micro variables identified from literature found significant in ISM analysis

These 9 variables were categorized into three micro variables : Change outcomes( financial-DCFO) , Change outcomes( Non financial-DCNFO) and Change outcomes( General-DCO)

Desired Change outcomes-DCO) and Non financial outcomes (DCNFO) were found to be signicant

• 2 most significant outcome variables are HI(Human Integration) and Cultural Integration (CI) of Non Financial outcome category (DCNFO)

22

Abbreviations

Employee emotions during change RTC: Resistance to change DC: Decreased Commitment LI: Loss of identity UN: Uncertainty Variables of Emotional balancing by middle managers ATRE: Attending to recipients’ emotions CTC: Commitment towards change

Desired Change outcomes DCO: Desired change outcomes DCFO: Desired change financial outcomes DCNFO: Desired change non financial outcomes HI: Human Integration CI: Cultural Integration

Discussion

While preliminary phase led to the identification of research variables from the

literature and their validation from the experts. Interpretive Structural Modeling

(ISM) provided an insight into the interrelationship among the micro variables of the

desired change outcomes and indicated the significance of human integration as the

key driver. A comparison of the significant research variables across two validation

methodologies (Regression and Case Analysis) indicated that the results have been

quite consistent with regards to employee emotions and middle managers role. As

regards the performance variables, while all the considered factors have found to be

significant, there is almost complete agreement on greater significance of Human

integration across the methods (ISM, regression and case analysis).

4.7 Final Validated Model

The result of the empirical analysis, especially the structural model obtained both at

the micro and macro levels along with the insights derived from the case analysis

have been depicted in figures below. The validated macro model derived from the

regression analysis shows ‘emotional balancing by middle managers’ as a strong

predictor of ‘desired change outcomes’ as depicted in figure 4.1. It was also found

that when controlled, ‘employee emotions’ along with ‘emotional balancing by

middle managers’ explain greater variation for ‘desired change outcomes’ which is

depicted in figure 4.2.

Significant relationships at the micro variable level, as depicted in Figure 5,

have been delineated into two categories namely ‘Direct paths’ (relationships across

micro constructs derived from regression analysis), and additional links (derived from

case analysis). As evident from figure 5, ‘resistance to change’ has emerged as the

23

most critical of all the ‘employee emotions’ with direct links to the two middle

managers roles. Other variables of employee emotions, ‘decreased commitment’ and

‘uncertainty’ were found to be significant for ‘attending to recipient’s emotions’. The

additional links represents employee emotions ‘loss of identity’ and ‘uncertainty’

which were found to be significant from case analysis affecting the ‘desired non-

financial change outcomes’.

0.577

Figure 4.1Emotional Balancing and Desired Change Outcomes

-0.146

0.581

Figure 4.2: Validated Macro Model (Regression Based)

Emotional Balancing by Middle

Managers


Employee Emotions during Change Desired

Change Outcomes


24

Direct Interactions Additional Links from Case Research

Figure 5: Final Structured Model with Significant Relationships at Micro Level

Attending to Recipient’s Emotions

-0.168

0.635

0.430

-0.226

0.204

0.150

-0.148

-0.284

Employee Emotions during change



Resistance to change

Decreased Commitment

Loss of Identity

Uncertainty

Commitment towards Change

Desired Change

outcomes (General)



-0.068

0.436 0.241

25

5. CONCLUSIONS, RECOMMENDATIONS AND FUTURE RESEARCH

DIRECTIONS

In this section the key conclusions of the study are highlighted by revisiting the

research objectives. Finally, recommendations based on the findings of the study are

presented, followed by limitations and directions for future research.

5.1 Identification and Preliminary Validation of Research Variables (Research

Objectives 1, 2 and 3)

Given the basic assumption, it was imperative to identify, delineate and contextually

validate the research variables at the outset, as envisaged in the first, second, and third

objectives. As a result, the entire preliminary phase was dedicated for this purpose.

Further, to study the third construct i.e. ‘desired change outcomes’- the macro

dependent variable of the study, a qualitative technique (ISM-Interpretive Structural

Modeling) was used to understand the interrelationship and impact of sub variables. A

hierarchical model was developed depicting the relationship. ‘Human integration’ and

‘cultural integration’ were identified as the basic drivers, the achievement of which

leads to the achievement of other outcomes as well. Based on the literature review,

five financial and four non-financial outcomes have been considered.

5.2 Validation of Conceptual Research Model: Revisiting Research propositions

(Research Objectives 4 and 5)

This sub-section analyzes the theoretical premises (research propositions) used in

developing the research framework for the study, as identified in the fourth and fifth

objective. The synthesized findings based on both, the empirical analysis and case

research, may be discussed vis. a vis. the research propositions as follows:

Proposition 1- Emotional balancing by middle managers influence desired change

outcomes (i.e. Smoother post-merger integration).

Results of the empirical survey validated the broad assumption that, emotional

balancing by middle managers emerged to be a significant predictor of desired change

outcomes. These relationships have also been validated in the case context which has

provided evidence from the secondary sources as well as case survey. By leveraging

the role of middle managers, merger at ICICI bank and Abbott achieved smoother

26

organizational adaptation and were categorized as successful mergers. The merger by

Wipro is considered as not so successful, since it failed to leverage the role of middle

managers, thus, facing a chaotic post acquisition phase.

Proposition 2- Employees Emotions during Change Influences Desired Change

Outcomes.

Research evidences from the literature indicated that ‘employee emotions’ are

heightened during the radical change context of post-merger integration phase

(Keifer, 2005; Teerikangas, 2010). The regression analysis reveals that ‘employee’s

emotions’ when regressed separately on ‘desired change outcomes’ at the macro level

was found to be insignificant. While at the micro level, three variables (resistance to

change, uncertainty and decreased commitment) exhibit significant influence on the

dependent variables. Further mediation analysis revealed only ‘resistance to change’

and ‘uncertainty’ explained greater variation with the dependent micro variables of

change outcome. None of the micro variables of ‘employee’s emotions’ impact

‘financial outcomes’ while testing mediation. The case analysis also demonstrated the

presence of negative employee emotions in ICICI bank- Bank of Rajasthan and

Wipro-Infocrossing mergers This validates the theoretical perception of the previous

researchers proposing the impact of employee resistance on change outcomes

(Emmanouilides and Giovanis, 2006; Moosholder et al, 2000).

Proposition 3 – Emotional balancing by middle managers play a mediating role


Given the significant role played by middle managers, it was hypothesized that they

may play a mediating role between ‘employee emotions’ and ‘desired change

outcomes’. Using Baron and Kenny’s (1986) statistical method of testing mediation, it

was found that ‘commitment to change’ partially mediates the relationship between

‘resistance to change’ and ‘desired change outcomes’ (general and non-financial

outcomes). While ‘attending to recipient’s emotions’ partially mediated the

relationship between ‘uncertainty’ and ‘non-financial outcomes’. This reiterates the

assumption of the research that there is possible mediation of ‘middle managers role’

in facilitating between ‘employee emotions’ towards ‘desired change outcomes’ (Bhal

et al, 2009; Teerinkangas et al, 2011; Antila, 2006).

27

5.3 Major Conclusions

Based on the synthesis of findings of the empirically validated models and case

research, the influence of the key research variables affecting the outcome parameters

can be delineated as follows:

The macro variable of ‘employee emotions’, though found to be very high

during the radical change context of M&A, does not influence either

‘emotional balancing by middle managers’ or the ‘desired change outcomes’

separately. However, when ‘employee emotions’ and ‘emotional balancing by

middle managers’ are controlled (R square at .355) explain significant

variation in the ‘desired change outcomes’, strengthening the assumption of

mediating role of middle managers. The analysis also revealed that ‘employee

emotions’ has a negative influence (beta value -14%) on the ‘desired change

outcomes’ whereas ‘emotional balancing by middle managers’ has a positive

influence explaining about 58% of variation in it.

‘Emotional balancing by middle managers’ emerged to be a strong predictor

of ‘desired change outcomes’. In fact, middle manager’s role of ‘commitment

towards change’ emerged as a stronger and more significant predictor of

‘desired change outcomes’ as compared to ‘attending to recipient’s emotions’.

So, a middle manager who is more committed to change initiates can facilitate

the process by attending to the subordinates emotions like resistance to change

and uncertainty, thus achieving the intended change outcomes.

Regression analysis for testing the mediating effect of ‘middle managers role’

also revealed the significance of the above variables (‘attending to recipient’s

emotions’ and ‘commitment towards change’) as predictors of ‘desired change

outcomes’. This implies that the ‘emotional balancing’ role of middle

managers has a direct and immediate effect on ‘non-financial outcomes’ of

change than on the ‘financial outcomes’.

The empirical analysis and case study both strongly endorsed the role of

middle managers (attending to recipient’s emotions and commitment towards

change) in leveraging the post integration process and achieving the change

outcomes.

28

5.4 Major Recommendations

Based on the findings summarized and presented above, some major

recommendations for the M&A experts, industry and academicians can be

enumerated as follows:

Given the presence of heightened emotions during M&A, management of

employee emotions, especially during post integration phase should be given

due importance and weightage. This in fact should be given precedence over

achieving financial objectives, as negative emotions are found to have

detrimental impact on desired outcomes of change (as highlighted in empirical

survey, ISM and case analysis).

Employee emotions such as resistance to change, decreased commitment, loss

of identity and uncertainty can have an adverse impact on the integration

process and consequently on the change outcomes (as evident in the results).

The case study of ICICI bank demonstrated strong resistance from the

employees which required a lot of effort from the management like providing

extensive training to employees, timely communication (i-Studio Live) and

setting up a grievance redressal portal (I-Care). Wipro also initiated training

programs for employees but was not effective which could be due to the less

involvement by middle managers.

Results indicated that the middle management should be involved in the

integration process. However, the survey showed very few companies

involved the middle managers in the post-merger process. This may be the

reason for high failure rate of M&A’s in India.

Involvement of middle managers in the strategy can enhance their

commitment which can be a facilitating factor for reducing resistance to

change and smoother human integration. Middle managers role of ‘attending

to recipient’s emotions’ can balance employee emotions such as decreased

commitment, uncertainty etc. which can be depicted from empirical analysis

and case study.

In order to capture the maximum potential of any deal, an organization must

specify each outcome and then track it in the post integration phase. This

recommendation can be clear from the findings of ISM. The hierarchical

29

relationships between the outcome variables, can be considered by the

practitioners to prioritize the focus on outcomes. For example, non-financial

outcomes like human and cultural integration should be accorded greater

importance during post-merger integration phase compared to the financial

outcomes like sales and ROI. Hence, the driving and dependence relationship

among the outcome variables can be used for strategizing by the top

management.

Finally, since middle managers act as significant mediator between the

employee emotions and change outcomes, their role should be leveraged

during radical change contexts for smoother human integration. This is

expected to result in a more committed workforce, thus, indirectly facilitating

the achievement of desired financial outcomes.

5.5 Key Research Contributions

The study is an attempt to provide a deeper insights into the human integration aspect

of post-merger deal phase, an oft quoted area of M&A failure, both at the global level

and more so in Indian contexts. Some of the significant contributions of the research

under consideration can be enumerated as follows:

The findings of the research strengthens the basic premise of the research that

‘emotional balancing by middle managers’ influences desired change

outcomes’.

Application of the concept of emotional balancing in radical change context

of M&A and its empirical validation is an original contribution to the field of

knowledge in change management. The findings of the study also add value

to the domain of organizational psychology and the theory of change process.

Further, the attempt to delineate the mediating role of middle managers is a

significant contribution with key implications for the practitioners.

Besides demonstrating the practical use of a qualitative tool like Interpretive

Structural Modeling (ISM), the hierarchical model of desired change

outcomes is a novel and original contribution to the field of M&A.

The research model is triangulated/ validated by two methodologies –

regression analysis and case study. Such a methodological triangulation which

30

has infused strong confidence in the applicability of the model is also a

contribution of the study.

Use of SAP framework for explaining the case background has provided more

clarity to the case analysis. The linking of SAP framework to the case analysis

is also an original contribution to the study.

5.6 Limitations of the Study

Despite undertaking a comprehensive (empirical opinion survey) and intensive (case

research) approach for the research it cannot be free from limitation given the wide

area of research and the sheer involvement of human effort. Some of the key

limitations of the study may be listed as follows:

The empirical survey of the study is constrained by the limitation of an

opinion survey. Though some level of cross- validation with the case facts has

been done, a bias for the response to other items cannot be ruled out.

The study is confined to the perception of acquiring firms only; it would be

more relevant if the acquired firm could also be included. The difficulty in

reaching the employees of the acquired firm was a major constraint.

Case feedbacks were collected from the top managers only, which may bring

in some personal bias.

5.7 Directions for Future Research

During the conduct of this research, a lot of insights have been developed which may

pave way for valuable research in the area. Some of the key suggestions for future

research can be enumerated as follows:

As the study focused only on the middle managers perspective of the acquiring

firms, due to time constraints, it may be further extended to the perception of

the acquired firms as well for further generalization of the validated

framework.

Since resistance to change has emerged as the most significant employee

emotions, it is imperative to study the perception of acquired firms employees

who were the main subject to be handled during post integration phase.

31

Further, the proposed model can be applied to other sectors as well. The

validated model can also be tested to study other forms of radical change

situations.

The mediating role of middle managers established may further be analyzed in

other change context as well.

Another possible area for exploration is the interaction of change outcomes as

highlighted in the model developed by using ISM. There seem to be a

significant contribution of one outcome in achievement of other. Structural

Equation Modeling (SEM) can be applied for gaining deeper insights.

5.8 Concluding Remarks

It may be recalled that the key objective of this research journey was to evolve a

validated framework ensuring achievement of intended outcomes by balancing

‘employee emotions’ by leveraging the ‘role of middle managers’. For this, the

preliminary phase of the study concentrated on the identification, validation and

deeper understanding of the research constructs and their relationships as

discussed in chapters two to five. The subsequent two chapters, six and seven,

were devoted to report the analysis and findings of the empirical opinion surveys

envisaged for the study, followed by the detailed analysis of the three select cases

interpreting the empirically validated research model (Chapter 5). This chapter

synthesized the learnings of the study, triangulated the findings from different

methods used and in the last section major findings, recommendations and

implications were summarized. Finally, the significant contributions of the

research, its limitations and suggestions for future research were also laid down

paving the way for further valuable additions in the field.

Thus, in the end, this research work can at best be considered a step forward in laying

the foundations for a more tangible theory building in the fields of organizational

behavior and change management, in the domain of mergers and acquisitions.

32

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vi

Content

Certificates i-iii

Acknowledgement iv-v

Contents

List of Tables x-xi

List of Figures xii-xiii

List of Abbreviations xiv

Chapter 1: Introduction to the Study 1-10 1.1 Background 1.2 Context of the Research 1.3 Motivation for Research 1.4 Research Questions and Objectives 1.5 Scope of the Study 1.6 Overview of Methodology 1.7 Organization of Thesis 1.8 Concluding Observations Chapter 2: Literature Review 11-56 2.1 Introduction to the Chapter 2.2 Organizational Change: A Conceptual Review 2.2.1 Organizational Change: Theories and Typologies 2.2.2 Radical Change: An Introduction 2.2.3 Radical Change: Challenges and Implications 2.3 Emotional Balancing: A Solution for Radical Change 2.3.1 Employee Emotions during Radical Change. 2.3.2 Perceiving Emotions: From Individual to Collective Level

2.3.3 Emotional dynamics: Negative Emotions Vs Positive Emotions

2.3.4 Barriers to Perceiving and Managing Emotions 2.4 Middle Managers: Sense Makers or Change Agents 2.4.1 Defining Middle Management: Trying Strategy to Operation 2.4.2 Emotional Balancing by Middle Managers 2.4.3 Middle Management: Competencies and Role Issues 2.4.4 Aligning Strategy, Leadership and Culture 2.5 Mergers and Acquisitions: A Conceptual Review of Research

Domain 2.5.1 Merger Waves 2.5.2 Factors Affecting Successful M&A’s 2.5.3 Why M&A’s Fail? 2.5.4 Employees Reactions and Behavior during M&A

2.5.5 Middle Managers Efforts in Promoting the Acquisition towards Success

vii

2.5.6 Expected Synergies from M&A: Desired Change Outcomes/Performance

2.6 Mergers and Acquisitions in India 2.7 Learning from The literature Review and Research Gaps 2.7.1 Learning from the Literature Review 2.8 Chapter Summary Chapter 3: Research Design 57-82 3.1 Overview of the Design of Study 3.2 Theoretical Outlook 3.3 Research Variables 3.3.1 Macro Variables 3.3.2 Micro Variables 3.4 Conceptual Framework for Research 3.5 Research Propositions 3.6 Hypotheses Formulation 3.6.1 Hypotheses of Association 3.6.2 Hypotheses for Micro Variables 3.7 Research Methodology 3.7.1 Preliminary Groundwork for Research 3.7.2 Research Methodology for Expert Survey 3.7.3 Research Methodology for ISM 3.7.4 Research Methodology for the Opinion Survey 3.7.5 Research Methodology for the Case Study 3.7.6 Research Methodology for Triangulation and Synthesis 3.8 Research Road Map 3.9 Chapter Summary Chapter 4: Verification and Modeling of Research Variables 83-91 4.1 Introduction 4.2 Verification of Research Variables in Indian Context

4.2.1 Expert Survey Methodology 4.2.2 Results and Analysis 4.2.3 Discussion of the Expert Survey 4.3 Interpretive Modeling of Change Outcomes during Post

Integration 4.3.1 Introduction to ISM 4.3.2 Interpretation of the ISM Model 4.4 Chapter Summary Chapter 5: Opinion Survey: Empirical Validation of the research

Framework 92-122 5.1 Overview of the Opinion Survey 5.2 Questionnaire Design, Pre-Testing and Finalization 5.3 Sample Design and Questionnaire Administration

5.3.1 Sample Size Determination 5.3.2 Relation behind Sample Selection 5.4 Validity and Reliability of the Questionnaire 5.4.1 Validity

viii

5.4.2 Reliability . 5.5 Validity and Reliability Analysis of Data Collected 5.5.1 Results of Factor Analysis 5.5.2 Results of Reliability Testing 5.6 Results of Univariate Analysis 5.6.1 Univariate Analysis of Macro Constructs 5.6.2 Univariate Analysis of Micro Variables 5.7 Results of Empirical Survey 5.8 Testing Hypotheses of Association 5.8.1 Correlation Analysis 5.8.2 Test of Normality and Multicollinearity 5.9 Hypotheses Testing For Macro Variables 5.9.1 Desired Change Outcome as Dependent Variable 5.10 Hypotheses Testing for Micro Variables

5.10.1 Testing Micro Hypotheses with Employees Emotions as Predictors of Desired Change Outcomes

5.10.2 Testing Micro Hypotheses with Employees Emotions as Predictors of Emotional Balancing by Middle Managers

5.10.3 Testing Micro Variables with Emotional Balancing as Predictors of Desired Change Outcomes

5.11 Hypotheses Testing for Mediating Role of Emotional Balancing 5.11.1 Methodology for Hypotheses Testing for Mediation Effect

5.11.2 Hypotheses Testing for Mediation Effect of Emotional Balancing by Middle Managers

5.12 Chapter Summary Chapter6: Analysis of Case Studies 123-148 6.1 Introduction 6.2. Methodology for the Case Study 6.3 Case Study I: Abbott Piramal Merger 6.3.1Background of the Case 6.3.2 SAP Analysis for Abbott-Piramal Merger 6.3.3 Case Analysis of Abbott-Piramal Merger 6.4 Case Study 2: Wipro-Infocrossing Merger 6.4.1 Background of the Case 6.4.2 SAP Analysis for Wipro-Infocrossing Merger 6.4.3 Case Analysis of Wipro-Infocrossing Merger 6.5 Case Study 3: ICICI Bank-Bank of Rajasthan Merger 6.5.1Background of the Case 6.5.2SAP Analysis for ICICI Bank-Bank of Rajasthan Merger 6.5.3 Case Analysis of ICICI Bank-Bank of Rajasthan Merger 6.6 Key Learnings and Comparisons of Cases ` 6.6.1 Summarizing Case Analysis 6.7 Chapter Summary Chapter7: SYNTHESIS AND CONCLUSION 149-166 7.1 Introduction to the Chapter 7.2. Findings from the Preliminary Study (Expert Survey and ISM) 7.3 Findings from the Opinion Survey

ix

7.4 Findings from Case Study Research 7.5 Triangulation and Synthesis 7.5.1 Methodological Triangulation 7.6 Final Validated Model 7.7 Summary of Findings: Revisiting Research Objectives

7.7.1 Identification and Preliminary Validation of Research Variables (Research Objectives 1, 2, and 3)

7.7.2 Validation of Conceptual Research Model: Revisiting Research Propositions (Research Objectives 4 and 5) 7.8 Major Conclusion 7.9 Major Recommendation 7.10 Implications for Key Stakeholders 7.11 Research Contributions 7.12 Limitations of the Study ` 7.13 Direction for Future Research 7.14 Chapter Summary References 167-186

Appendices

List of Publication (Related to the Research) *****************

x

LIST OF TABLES

Table 2.1: Key Research Shaping the Concept of Organizational Change

Table 2.2: Key Research Shaping the Concept of Employee Emotions during

Change

Table 2.3: Key Research Paper on the Role of Middle Managers in Radical

Change

Table 2.4: Key Research Shaping the Concept of Post-Merger Outcomes

Table 2.5: Desired Change Outcomes: Evidences from the Literature

Table 2.6(a): Deal Summary for M&A in India

Table 2.6(b): Recent Trends in M&A across Industries in India

Table 2.7: Key Research Shaping M&A in India

Table 3.1: List of Macro and Micro Variables Used in the Research

Table 3.2: Hypotheses Relating to Association of Macro Variables

Table 3.3: Micro Hypotheses Relating to Employee Emotions as Predictors of


Table 3.4: Hypotheses Formulation Relating Emotional Balancing by Middle

Managers as Predictors of Desired Change Outcomes

Table 3.5: Hypotheses Formulation Relating Employee Emotions as Predictors

of Emotional Balancing by Middle Managers

Table 4.1: Verification and Analysis of Research Variables

Table 4.1(a): Micro Variables of Employee Emotions during Change

Table 4.1(b): Analyses of Micro Variables of Middle Managers Role

Table 4.1(c): Analyses of Micro Variables of Desired Change Outcomes

Table 4.2: List of Variables used in ISM

Table 5.1: Summary of the Attributes of the Questionnaire Used in the Opinion

Survey

Table 5.2: List of Selected Companies

Table 5.3: Results of Factor Analysis

Table 5.4: Results of Reliability Test

Table 5.5: Univariate Statistical Analysis for Macro Variables

Table 5.6: Univariate Statistical Analysis for Micro Variables

xi

Table 5.7: Results of Correlation Analysis of all Variables

Table 5.8(a): Regression Analysis Model Summary for Desired Change Outcomes

Table 5.8(b): ANOVA for Desired Change Outcomes as Dependent Variables

Table 5.8(c): Coefficient Summary for Desired Change Outcomes as Dependent

Variable

Table 5.9: Hypotheses Relating to Association of Macro Variables

Table 5.10: Regression Analysis Summary of Employee Emotions as Predictors

of Desired Change Outcomes

Table 5.11: Regression Analysis Summary of Employee Emotions as Predictors

of Emotional Balancing by Middle Managers

Table 5.12: Regression Analysis Summary of Emotional Balancing by Middle

Managers as Predictors of Desired Change Outcomes

Table 5.13: Statistical Method in Testing Mediation

Table 5.14: Regression Analysis Summary for Testing Mediating Impact of

Emotional Balancing by Middle Managers on Desired Change

Outcomes

Table 6.1: Merger Details of Abbott-Piramal

Table 6.2: Financial Performance of Abbott India Ltd

Table 6.3: Merger Details of Wipro-Infocrossing

Table 6.4: Financial Performance of Wipro Ltd

Table 6.5: Merger Details of ICICI Bank- Bank of Rajasthan

Table 6.6: Financial Performance of ICICI Bank

Table 6.7: Summary of Case Contexts

Table 7.1: Triangulation Method Adopted for the Study

Table 7.2: Methodological Triangulation

********

xii

LIST OF FIGURES

Figure 2.1: A Model of Emotional Balancing during Radical Change

Figure 3.1: Proposed Research Model

Figure 3.2: Conceptual Research Framework

Figure 3.3: Emotional Balancing Affect Radical Change Outcomes

Figure 3.4: Employees Emotions Affect Desired Change Outcomes

Figure 3.5: Emotional Balancing by Middle Managers acts as a Mediating

Variable

Figure 3.6: Research Roadmap in form of Flowchart of Research Methodology

Figure 4.1: ISM Model- Change Outcomes Affecting Post Merger Acquisition in

India

Figure 4.2: Micmac Analysis

Figure 5.1: Research Design for Opinion Survey

Figure 5.2: Emotional Balancing and Desired Change Outcomes


Figure 5.4: Simple Mediation Model

Figure 5.5(a): Model Showing Mediation Effect

Figure 5.5(b): Model Showing Partial Mediation Effect

Figure 5.5(c): Model Showing Partial Mediation Effect

Figure 5.5(d): Model Showing Partial Mediation Effect

Figure 6.1: Extent of Employee Emotions in Abbott-Piramal Case

Figure 6.2: Impact Analysis of Middle Managers Role in Abbott Piramal Case

Figure 6.3: Achievement of Desired Change Outcomes in Abbott Piramal Case

xiii

Figure 6.4: Extent of Employee Emotions in Wipro-Infocrossing Merger Case

Figure 6.5: Extent of Role of Middle Managers in Wipro-Infocrossing Merger

Case

Figure 6.6: Achievement of Change Outcomes in Wipro-Infocrossing Merger

Case

Figure 6.7: Extent of Employee Emotions in ICICI Bank-Bank of Rajasthan

Merger

Figure 6.8: Extent of Middle Managers Role in ICICI Bank-Bank of Rajasthan

Merger

Figure 6.9: Achievement of Desired Change Outcomes in ICICI Bank-Bank of

Rajasthan Merger

Figure 6.10: Comparison of Cases for Employee Emotions during Change

Figure 6.11: Comparison of Cases for Impact Analysis of Middle Managers Role

Figure 6.12: Comparison of Cases for Achievement of Desired Change Outcome

Figure 7.1: Emotional Balancing by Middle Managers as Predictor of Desired

Change Outcomes


Figure 7.3: Final Structured Model with Significant Relationships at Micro level

********

xiv

LIST OF ABBREVIATIONS

ANOVA Analysis of Variance

ATRE Attending to Recipient’s Emotions

CI Cultural Integration

CTC Commitment Towards Change

DC Decreased Commitment

DCFO Desired Change Financial Outcomes

DCNFO Desired Change Non Financial Outcomes

DCO Desired Change Outcomes

EMB Emotional Balancing by Middle Managers

EPS Earnings per Share

GOI Government of India

HI Human Integration

ISM Interpretive Structural Modeling

LAP Learning Action Performance

LI Loss of Identity

M&A Merger & Acquisition

MM Middle managers

NGO Non Governmental Organization

QAS Questionnaire Appraisal System

RC Radical Change

ROE Return on Equity

RTC Resistance to Change

SAP Situation Actor Process

TISM Total Interpretive Structural Modeling

UN Uncertainty

********

Chapter : 1

Introduction to the Study

1

Chapter 1

INTRODUCTION TO THE STUDY

1.1 BACKGROUND

‘Change’ is a modification of the present situation (Vince and Broussine, 1996). It is

an attempt to move from a current state to a more desirable, improved state (Freese et

al, 2011; Koontz and Gomes, 2012). Organizational change, howevercan be defined

as “the planned attempt by management to improve the overall performance of

individuals, groups, and the organization by changingthe formation, activities, and

processes” (Kootnz and Gomes, 2012).It is an empirical observation of difference in

structure, value, or situation over time in an organizational entity (Van de Ven and

Poole, 1995). Greenwood and Hinings (1996) proposed two dimensions of change,

which we refer to as scope and pace. Change, is either convergent or radical in its

scope, and either evolutionary or revolutionary, in its pace.Radical change is

discontinuous and volatileadjustment in situation over two separate instants of time as

individually perceived by the people (Ford and Ford, 1995; Miller et al, 2012).

Radical change situations often elicit intense emotions, which come in the way of

achieving the desired outcomes of the change process.

Researchers in the area of change management have engaged for long to break

the code of change (Beer and Noharia, 2000). Of late, reviews on organizational

change literature have highlighted the need to explore beneath and beyond change

management to enhance change outcomes (Graetz and Smith, 2010; Nasim and

Sushil, 2011). Mergers and Acquisitions (M&A), considered vital for the rapid

growth and development of business enterprises, results in radical change in the

organizations.During M&A, employeesoften face uncertain situations and experience

intense emotions, thus, requiring a substantial commitment from managerial resources

(Jimmieson et al, 2004).

The radical change context of post merger integration phase of M&A is a

situation of high uncertainty which has a negative effect on employee’s emotions

(Naz and Nasim, 2015; Bhal et al, 2009). An increased level of uncertainty, or rumors

2

about restructuring and job losses, perceived threats to social identity, or speculations

about potential organizational change processes, may initiate these emotions. Indeed,

the problem with many mergers and restructurings, as well as with strategic planning,

in general, is that they often tend to reconcieve at a higher level without redoing at a

lower one (Mintzberg and Westley, 1992).Engaging with human resource and

managing emotions at the micro level may signify a majorsolution in addressing the

difficulties of radical change situations (Huy, 2002).

Research evidences prove that there is a growing interest in HR aspect of

M&A (Birkinshaw et al, 2000; Cartwright and Schoenberg 2006; Creasy et al, 2009);

but studies in the area of radical change often ignored the significance of employee’s

emotions to navigate change (Mair and Thumer, 2005). Recent studies, however, have

revealed that the emotional needs of theindividualsshould be met for rapid change to

occur (Liu and Perrew, 2005; Moosholder et al, 2000; Yongmie and Perrew, 2005)

and that emotional balancing of employee emotions is an emerging alternative to

facilitate organizational adaptation during radical change (Huy, 2002a).Indeed, too

many change actions without considering continuity create organizational chaos,

while the reverse could lead to inertia (Huy, 2002a; Nasim and Sushil,

2010).Emotional balancing, thus, refers to a group-level process involving the

combination of emotion-related issues intended to drive change and to encourage

continuity in a group of people (Huy, 2002a). Since researchers in the past have

reiterated the critical role of middle managers during radical change situations, it

becomes imperative to explorehow management of emotions at the micro level

(middle level managers) affects organizational adaptation in radical change contexts

(Toms et al, 2011; Huy, 2002a; Naz and Nasim, 2015). The model of emotional

balancing proposed specifies three interrelated dimensions of a change process theory;

middle managers as the main actors, emotional balancing as the process, and radical

change as the specific context.

This research under consideration, is an attempt to study the role of middle

managers who act as change agents during radical change situation of post merger

integration phase, and explores how they maintain emotional balance. The study

delves deeper into the theoretical constructs of ‘employee emotions’, ‘emotional

balancing’ and ‘desired change outcomes’ and investigates their linkages using

triangulation method i.e. mix of both quantitative and qualitative methods. Besides

3

empirical analysis to validate the proposed research framework, suitable cases of

M&A have been selected for an in depth analysis. Finally, a validated research model

is proposed, based on the findings of this study, highlighting the implications for the

practitioners in the field.

1.2 CONTEXT OF THE RESEARCH

Mergers and acquisitions are major events or transitions that have proven to be

difficult for both, the leaders to manage, and for the employees to experience. It has

often resulted in negative emotions and decrease in organizational effectiveness(Seo

and Hill, 2005; Brotheridge and Lee, 2008; Creasy et al, 2009; Kiefer, 2005).Change

can take place in an organization from the broadest, most conceptual level (for

example, in mindset or culture) to the narrowest and most concrete (for example a

person in a job) (Van de Ven and Poole, 1995). However, even in an era when ‘‘the

only constant is change,’’ employees may be neither ready nor willing to change

ahead. Their vision is oftenaffected by the emotional residue of anger, distrust, and

sadness built up during a mismanaged transition (Lazarus, 1993; Moosholder et al,

2000). If properly managed, a transition can be used to replace outdated

organizational structures, cultures, and processes with new ones- more dependable

with changing environmental conditions and competitive challenges (Vakola and

Nikolaou, 2005; Jimmieson et al, 2004).

Past researches in the area of change management, in general, and radical

change contexts like M&A, in particular, have largely focused on the macro level

changes (Nasim and Sushil, 2011). While some of them reiterated the link between

the ‘knowledge of change and resistance to change’ (Vakola and Nikolaou, 2005),

others emphasized the importance of ‘relationships and communication’, ‘story

telling’, role of change agents proposing learning based approaches to

transformational change’ etc.(Barton and Ambrosini, 2013). Most studies being macro

in nature, often neglect the individual level perceptions and reaction to change, thus,

ignoring micro level relations which are usually considered less significant (Barton

and Ambrosini, 2013; Parris, 2008).Surprisingly, recent studies in radical change

reveal that middle level managers can act as change agents and facilitate the change

process more effectively (Antila, 2007; Huy, 2001; Huy, 2002a). These groups of

managers being closer to the employees as well as top management, canunderstand

4

the strategy for change implementation better, and can help other employees to accept

change. During the change process middle managers continuously try to attend

employee’s emotions, whether negative or positive (Huy, 2002b; Floyd and

Wooldridge, 1992).

M&A’s pose challenging roles for the middle level managers to balance the

emotions of their subordinates which maylead to desired change outcomes i.e.

successful merger.The involvement of middle managers as facilitators between top

management and employees can result in smoother post merger integration.

Emotional balancing of the employees by middle level managers, thus, has been

recommended as a promising means of enhancing change outcomes (Huy, 2002a).

Hence, the research under consideration highlights how the middle level managers

facilitate or inhibit change by managing or mismanaging the emotions of their

employees during organizational change in acquired firm.

1.3 MOTIVATION FOR RESEARCH

Mergers and acquisitions are the most complex phenomenon than ever that frequently

failed to realize its potential (Marks, 1997; Teerikangas 2010; King et al, 2004). In

fact, as per KPMG report (2011), the failure rate of M&A has been as high as 70%.

Researchers in this area tried to explain the awful statistics by analyzing the attributes

of the deals that worked and that didn’t. Post integration hurdles especially people and

organizational change issues are most cited reasons for M&A failure (Emmanouilides

and Giovanis, 2006; Islam et al, 2012). Hence, it is becoming increasingly important

for M&A researchers to focus on human aspects of integration process. Although

several studies have tried to explore the human resource aspect of M&A (Bhal et al,

2009; Marks and Mirvis, 2011), there is very fewstudy focusing on the micro level

management of human resource which may have a considerable bearing on change

outcomes (Bhal et al, 2009; Antila, 2007).

As a result, two major outputs have been envisaged from the study:

Proposing a conceptual framework based on emotional balancing by middle

managers in radical change contexts; and

Empirical validation of the proposed framework highlighting the role of

middle managers for successful mergers and acquisitions.

5

Focus of the sixth wave (2003 onwards) of mergers and acquisitions has been

primarily on the post merger integration phase. The theoretical contribution would be

a value addition to the body of knowledge of change management and would also be a

value proposition for the practitioners in the field of M&A; especially in the Indian

context.

1.4 RESEARCH QUESTIONS AND OBJECTIVES

Based on the background of the research, following research questions have been

explored for the study:

What are the emotional responses of employees of organizations undergoing

mergers and acquisitions activities?

What is the role of middle level managers in managing these emotional

responses in the post acquisition period?

What are the desired change outcomes during post merger integration and how

are they inter related?

Does the emotional balancing by middle level managers affect the change

outcomes?Do middle managers play a mediating role in balancing employee

emotions during radical change context of post merger integration?

What is the linkage between the employee emotions, emotional balancing by

middle managers and desired change outcomes?

Research objectives mentioned below are framed by keeping research questions as

guidelines:

1) To study the extent of employee emotions during radical change context, in

general, and during post integration phase of M&A, in particular.

2) To study the role of middle managers in balancing employee emotions during

post merger integration phase.

3) To identify the desired outcomes during radical change situation related to

M&A and study their inter-relationships.

4) To study the mediating role of emotional balancing by middle managers

during post merger integration phase.

6

5) To suggest a validated research framework linking employee emotions,

emotional balancing and desired change outcomes during radical change

context of M&A.

1.5 SCOPE OF STUDY

Mergers and acquisitions is a wide area with scope in different fields of research such

as finance, economics, strategy, organizational behavior and psychology. This study

deals with the strategic part of M&A linking it with organizational behavior and

psychology. Research shows that most M&A fail to meet the expectations set for

them. The failure could be in all the three phases of the acquisition- pre deal, during

the execution and post deal. Post deal by virtue of its complexity is probably the

biggest culprit. The focus of the study is on planning and management of the post

merger integration process.

For the empirical study, the sample frame ofM&As during 2007-2012 in India

were selected, in order to ensure that the acquisition process was completed and that

the company was going through the post acquisition phase, by the time data was

collected for the study. Further, a set of criteria were adopted to make sure that the

desired context of radical change with a sizeable middle management could be found.

For this, mergers with deal value more than 500 mn USD and with 100 percent stake

in the acquired firmswere selected. And companies where the acquirer was the parent

company itself i.e. parent acquiring its own subsidiary were excluded. Standard’s and

Poor Capital IQ database for M&A was referred to for the screening and short listing

of companies for data collection, the details and logic of which is explained in detail

in chapter 5. Finally six companies from the service sector- two each from healthcare,

financial and information technologysector-with M&A deals completed by 2012 were

selected for the quantitative study.Further, for the qualitative study, three M&A were

shortlisted, namely- Abbott- Piramal, Wipro- Infocrossing and ICICI bank- Bank of

Rajasthan for an in depth case analysis.

The method of data collection for the empirical survey has been

predominantly questionnaire based. The questionnaire was designed using items from

literature, and previousscales to collect the opinion of middle managers. For case

study, various sources have been used like published material, electronic databases

7

besides using a case template to collect the data from respondents involved in the

select M&A cases.

1.6 OVERVIEW OF METHODOLOGY

The research approach adopted for the study is to develop a conceptual research

model at the outset on the basis of a preliminary study. The research was carried out

in three phases-a pilot study to identify and confirm the research variables.Followed

by an empirical surveyto validate the conceptual model, which was further

triangulated by an in depth analysis of select cases.

Preliminary Groundwork

After an extensive literature review the research variables were identified, for general

radical change situations, and in the specific context of M&A. In order to confirm the

variables, an expert survey was conducted to confirm the relevance and applicability

of the research constructs identified from the literature, for the context of M&A in

India. Further, a qualitative technique Interpretive Structural Modeling (ISM) was

used for developing a hierarchical relationship among the change outcomes - the

dependent variable of the study. The purpose was to know the inter relationship

among the outcomes and which should be given more priority. Insights gained from

these methods were used to hypothesize the conceptual research framework.

Conceptual Framework and Hypothesis Formulation

Hypotheses were formulated by taking insights from the preliminary phase. Drawing

from the literature and expert opinion, the idea that leveraging middle managers role

during change situations can help in balancing employee emotions and achievement

of desired change outcomes (Huy, 2002a), a conceptual framework for the research

was proposed based on which hypotheses were formulated. As a result the research

propositions explore the possible relations between three broad sets of research

constructs namely- employee emotions during change, emotional balancing by middle

managers and desired change outcomes.

Empirical Study for Hypotheses Testing

Hypotheses testing were carried out through questionnaire based survey eliciting

responses from middle managers of acquiring/acquired firms. Hypotheses of

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association were tested to study the impact of research constructs on one another. The

proposed conceptual model was validated and discussed for both, macro and micro

level variables.

Case Study- Interpreting the Research Model

After conducting the questionnaire based survey, case studies were carried out for

select M&A’s to interpret the validated research model. The three big deal

acquisitions namely- Abbott- Piramal, Wipro- Infocrossing and ICICI bank- Bank of

Rajasthan mergers, were shortlisted for an in-depth study to interpret the empirically

validated research model.

Synthesis of Results

Finally, the results from the empirical survey and insights from the case studies have

been synthesized, based on which a validated research model for ‘emotional balancing

by middle managers’ during post integration phase has been proposed.

1.7 ORGANIZATION OF THESIS

The thesis has been organized in to sevenchapters which are briefly introduced as

follows:

Chapter one is a basic introduction about the research work done and

presented in the thesis. It briefly discusses about the background and motivation of the

research. Further,it enumerates the research questions, objectives, scope and outline of

the methodology adopted for the study. Finally, a brief organization of the theses is

given in the end.

Chapter two provides the theoretical base by presenting an extensive literature

review which supports the research constructs. The basic trigger for this work was the

research paper by Huy (2002a), which emphasized the role of middle managers

during radical change situations. To justify the research base, review of literature was

done extensively across themes like ‘organizational change’, ‘radical change’,

‘employee emotions’ and ‘middle manager’s role’. Huy (2002a) studied a general

radical change situation and the domain chosen for this research is a radical change

situation of post merger integration. An introduction to the research domain is also

9

presentedwhich provides an overview of M&A in India. Research gaps identified

from the literature are also highlighted in the end

Chapter three presents an overview of research design adopted for the study by

describing the macro and micro variables. The macro research variables for the study

are: ‘employee emotions during change’, ‘emotional balancing by middle managers’

and ‘desired change outcomes’. The relationship between these variables are further

hypothesized and depicted in the proposed conceptual framework of the study.

Chapter four reports the results of a preliminary survey of 30 domain experts

conducted to validate the research constructs. A list of ‘desired change outcomes’ of

M&A have been discussed and a preliminary modeling using qualitative method of

Interpretive Structural Modeling (ISM) based on domain expert’s opinion has been

undertaken, the result of which had been used to develop a hierarchical model. This

study provided a new perspective in the area of M&A.

Chapter five discusses the survey approach adopted for the study. The process

of developing the questionnaire, its administration and validation is discussed in this

chapter. The research methodology adopted and rationale for selecting the sample for

empirical survey is also outlined. This chapter represents the results and discussion of

the empirical survey where validation and structural analysis of the conceptual

research framework is undertaken. For analysis, statistical methods like factor

analysis, reliability, multicollinearity and regression are used.

Chapter six is a presentation of select case studies which is used to interpret

the empirically validated model. It includes the methodology adopted for conducting

the case studies followed by discussion on the three selected cases. Finally, the cases

are compared and interpreted with respect to the research model.

Chapter seven is the synthesis of both empirical survey and case studies

conducted for the research. The key findings of the research and their triangulation are

also discussed. Further, the chapter highlights the major conclusions of the research,

based on which suggestions and implications for the stakeholders are outlined. In the

end, the research contributions, key limitations and the directions for the future

research in the area are also discussed.

10

1.8 CHAPTER SUMMARY

Growth through acquisition is the modern mantra of corporate world. Despite

increasing number of M&A, research indicates that success rate is low. A successful

M&A comes from carefully combining employee engagement program with multi-

layered strategy for achieving smoother integration. A revisit to the organizational

changeand M&A literature from human resource perspective reiterates the fact that

leveraging middle managers role to balance employee emotions can help in better

achievement of desired change outcomes. The research problem under study explores

the possible relationship between the three broad research constructs and its impact on

the M&A process. The outcome of this research work is envisaged to be an

empirically validated model for better management of the employee issues during

post acquisition phase.

This chapter is an overview of the context- both theoretical and domain of the

research,and has been discussed by highlighting the research questions, objectives,

methodology (in brief) and organization of the thesis. The next chapter deals with an

extensive literature on various aspects related to the theme of the research.

Chapter : 2

Literature Review

11

Chapter 2

LITERATURE REVIEW

2.1 INTRODUCTION TO THE CHAPTER

Given the theoretical constructs of the research an extensive review across areas like

organizational change, radical change, and employee’s emotions, emotional balancing

role of middle managers and mergers and acquisition literature has been undertaken.

At the outset, a conceptual review of the radical change context highlight the need for

managing heightened employee emotions and the possible role of middle managers in

addressing them. So, the next section explores the existing literature on the ‘role of

middle managers’ especially in radical change situations. Further, the domain of

research being mergers and acquisition, an insight into the basics of M&A in general

and in the context of India is presented in the subsequent section. Next, the theoretical

constructs of employee emotions during M&A and role of middle management in the

post merger integration phase are explored both in general and in the context of India

and research gaps are highlighted in the end.

2.2 ORGANIZATIONAL CHANGE: A CONCEPTUAL REVIEW

Research on organizational change is filled with several thoughts, theories and

models. Despite rigorous research in this field the success rate identified by the

scholars seems to be 1:3 (Beer and Nohria, 2000). A conceptual review is undertaken

to study organizational change and its consequences. The environmental pressures

and the demand to remain competitive for long term survival compels the

organizations to change itself (Liu and Perrewe, 2005; Huy, 2002b; Luscher and

Lewis, 2008). Organizational changecan be defined as amodification to an

organization’s structure, its processes and social system (Kiefer, 2005) and is looked

upon as a “tradition of the new” (Huy, 2002a).It is a continuous process which never

unfolds in an expected way (Van de Ven and Sun, 2011) and intends to transform the

organization in a new and different way (Huy, 2002a). Changeis looked upon as a

problem to be solved by relevant strategies, and is deemed toface resistance by the

recipient’s and which is then followed by readjustment (Vince and Broussine, 1996).

Researchers have identified causes for organizational changewhich can be

from internal and external sources (Klarner et al, 2001; Kuntz and Gomes, 2012;

12

Chia, 1999). In content research most theorists have divided change into two types

according to scope (Alas, 2007): change taking place within the given system and

change aiming to modify the system itself (Greenwood and Hinings, 1996). Based on

the classification organizational change can be distinguished as first order change and

second order change (Kuntz and Gomes, 2012; Alas, 2007).

First order changes are incremental changes which do not involve major

change in strategy or corporate identity but it preserve and develop the organization

(Alas, 2007). These changes support organizational continuity (Kuntz and Gomes,

2012). A first order change does not result in transformation as it involves incremental

modification within an organization’s process and procedures (Kuntz and Gomes,

2012), lacking the vision to discover new strategic ideas (Alas, 2007).This requires

analteration of behavior to convene to the organization’s established beliefs

concerning appropriate actions (Bartunek, 1993). Thus, first-order change initiatives

are aimed at improving the status quo through changes on onlyfew organizational

levels (Kuntz and Gomes, 2012). This change is similar to ‘Darwinian’ theory which

emphasized a continuous and gradual process of evolution (Van de Ven and Poole,

1995).

Second order changes are transformational and radical change that modifies

the organization at its core (Kuntz and Gomes, 2012). It demands innovation in order

to lead the change (Alas, 2007). It decides the end result first and then considers how

an organization could be changed to meet these new expectations (Kuntz and Gomes,

2012). Incremental changes are at times insufficient in meeting the demands of

turbulent environments; in conquering or preserving a competitive advantage (Hamel,

2000). In such circumstances, second-order change is looked upon, which involves a

paradigm shift in the organization (Kuntz and Gomes, 2012), or “discontinuous shifts

in frameworks” (Bartunek, 1993).It demands a radical departure from past practices

with focused leadership to the phase where such shifts recreate the organization

(Greenwood and Hinings, 1996).There are four dominant contemporary examples of

large-scale radical change, namely downsizing, restructuring, business process re-

engineering, and mergers and acquisitions (M&A’s) (Jacob et al, 2013; Francis et al,

2003).

In a nutshell, such changes areinclude alpha change, where employees simply

expand their current activities, and beta change, which involves the modification of

the values (Chapman, 2002). Burke and Litwin (1992) had distinguished between

13

transformational and transactional changes. Transformational factors deals with the

areas that involves different employee behavior as the consequence of external and

internal environmental pressures. These are strategy and mission, culture and

leadership. Transactional factors deal with psychological and organizational variables

that predict and control the motivational and performance outcomes of the employees.

Recent researches on organizational change is not a simple case like Lewin

unfreezing- moving- refreezing (Chia 1999) because during radical change employees

do not reach the refreezing stage as they are always in the uncertain stage (Vakola and

Nikalaou, 2005; Graetz and Smith, 2010); which leads to generation of intense

emotions influencing the organizational outcomes (Jimmieson et al, 2004).

2.2.1 Organizational Change: Theories and Typologies

Change in an organization is not an isolated or discrete activity but involves multiple

and ongoing processes (Kiefer, 2005;Chia 1999). A simple model of change process

given by Kurt Lewin proposed that successful change should follow three stages: the

‘unfreezing’stage which involves communicating the need for change,‘moving’

includes developing new process and behavior to achieve a new desired state and in

‘refreezing’ stage the organization settles down itself in the new phase (Burnes,

2004). The concept of planned change dominated the organizational change research.

Mintzberg and Westley (1992) also proposedthree processes of change which includes

formal planning, informally driven leadership and learning. Later, Huy (1999) in his

paper explained that change management could be easier if the process is divided into

three stages for successful implementation: receptivity, mobilization and learning.

Chia (1999) gave a ‘rhizomic model of change’ in which he stated that

organization is a well established pattern, a continuous change- resisting, so

organizational change is a evolutionary process. Van de Ven and Poole (1995),

attempted to understand and manage organization changeby giving a four process

model and proposed a typology of change which consisted of four process models of

organizational change namely; teleology (planned change), life cycle (regulatory

change), dialectics (conflictive change), and evolution (competitive change). Another

scholar Tushman and Romanelli (1985) developed the punctuated equilibrium model

to describe organizational change through time. According to him, the evolution

process in an organization is described as phases of incremental change punctuated by

periods of discontinuous change, in which the role of the manager’s leadership is

14

leveraged to strengthen the effective strategy, the essential values and the mission of

the firm, while observing the opportunities and threats of the environment (Tushman,

Newman, & Romanelli, 1986).

The dominant theories of organizational change focuseson two dimensions

namely time and content of change (Huy, 2001). According to Beer and Nohria

(2000), there are two theories of change revealing different goals, assumptions and

values. ‘Theory E’modifies tangible structure and work process and ‘Theory O’ renew

culture and social systems. Another theory of change, the configuration theory was

explained by Meyer et al, 1993, which expects “organizations to alternate between

disequilibrium and equilibrium, with discontinuous change punctuating periods of

stability”. It presents an intense picture of organizational change which goes through

chaos, volatility, nonlinear relationships (in which small inputs can trigger massive

consequences), and temporalitya heightened sensitivity to the process.

Mintzberg and Westley (1992)suggested model of organizational change

focusing onsequence and patterns of change,and described change as revolutionary,

piecemeal, focused, or isolated, and incremental. Greenwood and Hinings (1988)

treated the subject of macro organizational change with the concept of tracks, which is

a sequence that involves the alteration of elements in the structure. There should be

transformational reorientation; movements that start a transformation process

followed by a period of stability where incremental changes occur. Huy and

Mintzberg (2003) refer to revolutionary change as dramatic change, and emphasized

that the leaders of the organization should initiate this in the times of crisis or

opportunity. Many organizational scholars shifted their level of analysis to the

organization or units within it to apply an evolutionary theory of change that

recognizes the roles of managerial choice and action (Van de Ven and Sun, 2011).

2.2.2Radical Change: An Introduction

A radical change is a qualitative adjustment of an organization's rules of functioning,

the basic rules that members use to interrelate cognitively and behaviorally with the

world around them (Miller and Friesen, 1984). A radical or revolutionary

transformation is viewed as “trigger events” (Kiefer, 2005) that challenges employees

identity with the organization and creates high uncertainty about their future roles and

status, which elicits anxiety (Argyris, 1989). These changes are ‘turbulent’ (Reilly et

al, 1993), non-trivial, fast, discontinuous (Brundin et al, 2008) and unpredictable

15

alteration in circumstances over two separate instants of time as individually

perceived by the people affected (Ford and Ford, 1995), and this elicits intense

emotions.Radical change not only triggers the organization but also the individuals

who experience the process and outcomes of change (Meyerson, 2001). These

changes include rapid organizational transformation to meet the new environmental

demands like inflation, market uncertainties etc(Jacob et al, 2012). Such

transformations tend to experience disorganized dynamic conditions, so it becomes

imperative for theleaders across the organization to adapt a disciplined approach in

order to take the individuals behavior from known to unknown situations (Isern and

Pung, 2007).

Organization continues to change at a radical and accelerated pace (Cartwright

and Holmes, 2006).Radical changes may be infrequent in organizational life, but they

are consequential for an organization's existence (Jacob et al, 2012).Realizing radical

change is difficult, as there are chances for intense disappointments which mean high

mortality risks (Francis et al, 2003). There are numerous changes during radical

transformation in an organization likerevision of strategies, realignment of

organizational cultures with values, processes are reworked and value chains are

redesigned (Francis et al, 2003). It is anextensive concept which refers to organization

wide change and is dissimilar from minor change initiatives (Saksvik et al, 2007).

When the organization’s structure or system is interrelated, it requires radical

or second order change, as when the system is strongly associated a forceful intrusion

and discontinuous replacement is required (Huy, 2002b). The radical change causes

major uncertainty (Huy, 1999) and is asource of workplace stress which is associated

with a wide range of negative emotions; less attention to employees’ psychological

responses to organizational change is implicated in the failure of change programs

(Kotter, 1995; Martin et al, 2005) and other important organizational outcomes.

2.2.3 Radical Change: Challenges and Implications

Organizations fail to recognize the necessity of challenge during radical change and

often lack the understanding of the level of destruction and reconstruction (Francis et

al, 2003). In this situation the effort should be to manage the dynamic, and not the

pieces in isolation. The significant task is to balance the pieces against one another

which have an impact on the rest of the elements (Duck, 1993).Top management may

perceive change as positive and necessary to the organization, but these positive

16

attitudes do not extend to the individual levelor the employees who are expected to

cope with the forthcoming changes andshow positive emotions toward change (Kuntz

and Gomes, 2012).

The radical nature of change often results in negative reaction and resistance

to change in the organization as it affects the employees directly (Fugate et al,

2008).Radical changes have important consequence for organization and its

employees (Reilly et al, 1993); the consequences of change may include decreased

commitment, morale, trust and loyalty (Vakola and Nikolaou, 2005). Also, the

emotional consequences of change may influence employee performance negatively

(Cartwright and Cooper, 1996). Greenberg and Baron (1993) suggested three

preconditions for successful organizational change, namely ‘high need for change’,

‘low resistance to change’ and ‘high change readiness’.Most of the organizational

change theory highlighted the adverse impact of resistance to change (individual

differences in reaction to change); however this may indicatea defective change

implementation strategy (Oreg, 2003).Readiness to change is the employee

assessment of the change process (Kuntz and Gomes, 2012) and how much they

exhibit a positive attitude towards the need for organizational change, and the

assurance that the ongoing changecan be effectively accomplished by the

organization(Wanberg and Banas, 2000; Kuntz and Gomes, 2012).Revolutionary

change affects the overall organization and is likely to confront change managers

(Francis et al, 2003).

Organization having strong cultural values and identity beliefs are hard to

change, so managing change or maintaining consent is a challenging task (Mintzberg

and Westley, 1992;Chia 1999). There is a need to develop capabilities that involve

significant alteration for its long term survival (Huy, 2002b). Often the ineffective

strategies wereplannedto change culture without changing structure, systems, and

people, or vision, it is like a change in thoughts with no change in action (Westley,

1990).Such a radical departure from the familiar modes of organizational theories

implies that the strategies and priorities involved in the ‘management of change’ must

be critically reassessed (Chia, 1999).

A comprehensive review of the literature on ‘organizational change’ and

‘radical change’ has been undertaken, to explore the underlying causes for ‘change

failures’.Studies on change management attributed ‘resistance to change’ as the

reason for failure and have prescribed various models and approaches to tackle it

17

(Huy, 2002a; Nasim and Sushil, 2010; Jacob et al, 2013).Researchershave

acknowledged the need to manage organizational change, but very few have actually

attempted to explain the ‘how’ part.The theoretical lens of ‘emotional balancing’ for

managing organizational change proposed in Huy’s (2002a) model seems promising,

which was already applied in a radical change context, discussed in section 2.3.It is

important to move from theoretical perspectives which delineate the complexity of

change to practical models which can facilitate the management of this complexity.

Key researcher shaping the concept of organizational change is presented in Table

2.1.

Table 2.1 Key Research Shaping the Concept of Organizational Change S.No Author/

Date of Issue Title of the paper/ Journal

Type of research paper/ key theme

Theme of the Paper

1) Jansson, 2013

Organizational change as practice: a critical analysis/ Journal of Organizational Change Management

Conceptual Paper

This research contributes to both theory and practice by offering a critical view on some of the taken-for-granted organizational change practices. This paper also demonstrates originality by introducing the concept of “organizational change as practice” in analogue of “strategy as practice” (SAP).

2) Jacobs et al (2013)

A theoretical framework of organizational change/ Journal of Organizational Change Management

Conceptual Paper

This paper makes an ambitious attempt to cross disciplinary boundaries in the field of organizational change research to contribute to a more comprehensive and holistic understanding of change processes by integrating perspectives that focus on the internal context and the external environment of organizations.

3) Kuntz and Gomes(2012)

Transformational change in organizations: a self-regulation approach/ Journal of Organizational Change Management

Conceptual Paper

The variables and processes depicted in the model provide guidelines for change management in organizations, both for individuals and for groups. By eliciting important self-regulating functions, change agents will likely facilitate sensemaking processes, positive interpretations of change, change readiness, and effective change behaviors.

4) Millaret al (2012)

Sustainability and the need for change: organizational change

General Review The papers cover the key sustainability dilemmas: how to balance short term priorities with

18

and transformational vision/ Journal of Organizational Change Management

long term vision, organizational change with stability, strategic goals with day to day implementation, domestic with international responsibilities; how to manage the corporate brand, image and reputation; how to influence policies nationally and internationally, and foster relations, all in the realm of effecting the change in attitude and behavior that sustainability demands.

5) Nasim and Sushil(2011)

Revisiting Organizational Change: Exploring the Paradox of Managing Continuity and Change/ Journal of Change Management

Conceptual paper

Conceptual review of the repository of organizational change literature from the perspective of a ‘paradox lens’, highlighting a clear shift in approach from trade-offs (either–or) to paradoxical thinking.

6) Freeseet al (2011)

The impact of organizational changes on psychological contracts A longitudinal study/ Personnel Review

Empirical longitudinal field research

The impact of organizational changes on psychological contracts by using a longitudinal design.

7) Graetz and Smith (2010)

Managing Organizational Change: A Philosophies of Change Approach/ Journal of Change Management

Conceptual paper

Outlined 10 different philosophies to focus the complementary and competing forces that organizations face in managing the tension between continuity and change and how to deal with perennial issues such as certainty/uncertainty.

8) Franciset al(2003)

Managing Radical Organizational Transformation/ Management Decision

Case Study Explains how organizations faced with transformational change can build extraordinary management capabilities. It determined that there is a need for firms to create distinctive capabilities for managing radical discontinuity.

9) Huy (2002) Emotional Balancing of Organizational Continuity and Radical Change: The Contribution of Middle Managers/ Administrative Science Quarterly

Case Study/ Grounded Research

This article is the first to propose the emotional balancing role of middle managers in a radical change context.

10) Meyerson (2001)

Radical change: the Quiet Way/ Harvard Business Review

Conceptual article

Reconsidered the way approaches by which cultural change happens in the workplace.

11) Chia (1999) A ‘Rhizomic’ Model of Organizational Change and Transformation: Perspective from a Metaphysics of Change/ British Journal of

Conceptual Research

Offers an alternative model of change which, it is claimed, affords a better understanding of the inherent dynamic complexities and intrinsic indeterminacy of organization transformational processes.

19

Management 12) Huy (1999) Emotional capability,

intelligence and radical change/ Academy of Management Review

Conceptual Paper

Presents a multi level theory of emotion and change.

13) Van de Ven and Poole(1995)

Explaining Development and Change in Organizations/ The Academy of Management Review

Conceptual paper

Introduced a typology of four ideal-type theories of organizational development and change: life cycle, teleological, dialectical and evolutionary.

14) Mintzberg and Westley (1992)

Cycles of Organizational Change/ Strategic Management Journal

Conceptual Paper

Provided a remedy forchange situation by developing a comprehensive framework of change by organizations, built on various cycles: concentric to represent the contents and levels of change, circumferential to represent the means and processes of change, tangential to represent the episodes and stages of change, and spiraling to represent the sequences and patterns of change.

2.3 EMOTIONAL BALANCING: A SOLUTION FOR RADICAL CHANGE

Emotional balancing is a concept propounded by Huy (2002a) as a possible solution

for radical change situationfacilitatingthe desired outcome of organizational adaption

by employees (Huy, 2002a; Naz and Nasim, 2015).It is defined as “change recipient’s

emotionally charged interpretations of agent’s actions that materially influence

recipient’s cognitive and behavioral responses to the proposed change” (Huy, 2002a).

It was evident from the literature on radicalchange that it involves different kinds of

personal loss for employees at all levels (Eriksson, 2004; Fugate et al,

2008).Employees often appraise organizational change negatively (Reilly et al, 1993),

as they perceive change as harmful (Fugate et al, 2008). The emotions displayed by

employees reflect how they feel about the ongoing change process or how they may

react to these events (Moosholder et al, 2000). Researchers have identified various

emotions ranging from positive to negative attitudes towards change (Kiefer, 2005;

Fugate et al, 2008); therefore change can be acknowledged with excitement and

happiness or fear and anger (Reilly et al, 1993). So employee response can range from

positive intentions to support change from negative intentions to resist it (Sanchez-

Burks and Huy, 2009). However, when emotions are managed perfectly, it can

increase employee’s effort on desired strategic change (Huy, 2012). When not

20

managed efficiently emotions can become an obstacle for change and employees

become less receptive to change projects (Eriksson, 2004).

2.3.1 Employee Emotions during Radical Change

Emotional balancing of individuals is an essential part of radical change which

regulates emotion management during change processes (Huy, 2002a). According to

Brundin et al (2008), “An emotion is a valence affective reaction to perception of

situations and it serve as an indicator of well being and happiness”. Emotions can be

defined as “coordinated responses to changes in the environment that involve

invoking specific experiences, activating relevant cognitions, appraising the ongoing

situation for change and coordinating bodily states” (Gadot and Meisler, 2010). They

are reactions to the situation and have its behavioral implications(Liu and Perrewe,

2005). It defines a perception of individual and is strongly linked to motivation,

behavior and psychological health (Cartwright and Holmes, 2006). Emotions can be

viewed as feelings arising when a person appraises an event as harmful or helpful for

his goals (Sanchez-Burks and Huy, 2009).

Emotional issues in the organization are generally neglected whereas change

process is complemented with emotions (Kiefer, 2005). It can be categorized as

“hedonic tone” and “level of arousal” (Liu and Perrewe, 2005). Hedonic tone

symbolizes pleasant emotionslike feeling of joy, excitement, trust and surprise are

categorized as positive emotions and fear, anger, anxiety, grief, sadness etc as

negative emotions, whereas level of arousal refers to intensity of experienced

emotions (Liu and Perrewe, 2005). According to Moosholder et al, (2000), individual

emotions can be categorized in four types namely: experimental, affective,

physiological and action readiness. These emotions were measured in terms of

pleasantness and arousal and their connection with job related attitudes which include

job satisfaction, job Involvement, job turnover intention and change activity

assessment. Emotional reaction can be expressed in terms of pleasantness dimensions

i.e. either pleased or displeased; when arousal is combined with pleasantness

determines a range of emotions during transformation. An emotion is regarded as

positive if the receiver of emotional signal experiences positive feelings with respect

to the role fulfillment of the sender (Brundin et al, 2008).Positive emotions broaden

people mindsets and even strengthen the formal and informal relationships (Liu and

Perrewe, 2005). Thus, emotions are found to be a significant predictor of achieving

21

organizational goals and in succeeding change programs (Vakola and Nikolaou,

2005).

In order to balance employee emotions, it is essential to understand how

employees adjust to organizational change i.e. how they see the situation. This can be

understood by situational appraisal which consists of both primary and secondary

appraisal (Jimmieson et al, 2004). Primary appraisal refers to individual judgment of

significance of the situation to his well being whereas secondary appraisals reflects

what can be done to manage the situation (Jimmieson et al, 2004). Lau and woodman

(1995) suggested that a highly committed employee is more willing to accept change,

if perceived as beneficial.

The organization transformation can provoke uncountable positive and

negative responses (emotional turmoil) from change recipients (Moosholder et al,

2000; Huy, 2002).Fundamental change in organization’s structure, process, personnel,

identity or other major organizational issues often triggers intense emotions (Eriksson,

2004; Kiefer, 2005).Organizational change is viewed as significant life events which

creates negative consequences in employees (Jimmieson et al, 2004). So

organizational change can be managed by ‘emotional balancing’ of employees as it

generates personal control over a discontinuous and threatening change (Huy, 2002a).

2.3.2 Perceiving Emotions: From Individual to Collective Level

Organizations are not an individual driven entity but a synergistic teamwork system

(Vijayalakshmi and Bhattacharyya, 2011).An important issue to deal with is impact of

individual level emotions on collective level i.e. “collective emotions” (Vijayalakshmi

and Bhattacharyya, 2011) and its subsequent impact on organizational level outcome

and then firm performance (Huy, 2012). Individual emotions can contaminate the

group emotions as people grab emotions of one another, this process is termed as

emotional contagion, a crucial variable for explaining individual behavior (Eriksson,

2004;Vijayalakshmi and Bhattacharyya, 2011). It can be defined as “the principle of

direct induction of emotion by way of primitive sympathetic response” (McDougall,

1993). The demotivated employees can poison their peers as they resist all managerial

attempts to improve their performance (Furnham, 2002). When employees work in

groups and share a formal relationship, there are possibilities of developing an

informal relationship with few members, not necessarily with everyone

(Vijayalakshmi and Bhattacharyya, 2011). Employees get affected by the emotions

22

common in the group either positive or negative, thus unintentionally developing

shared emotions (Huy 2002,Vijayalakshmi and Bhattacharyya, 2011).

Vijayalakshmi and Bhattacharyya, (2011) explored dimensions for measuring

individual’s receptiveness to other’s emotions which are reactivity, sensitivity to

others, social functioning, self esteem, empathy, alienation, self assertiveness and

emotional stability. These shows how individual’s personality influences his degree of

receptiveness to “catch” others emotions. Emotional intelligence is another important

factor in guiding individual responses. It can be defined as “an ability to understand

and to solve problem that involves managing emotional responses, understanding

emotions, appraising emotions from situation, using emotions and identifying

emotions of others” (Gadot and Meisler, 2010). It may be easier for the employees to

accept change when they have clarity about their own emotions and can judge other’s

emotions as well (Vijayalakshmi and Bhattacharyya, 2011).

Members who strongly identify themselves with their group experienced

similar emotions as the group, so valuing group social identities can elicit positive

emotions such as joy and pride whereas devaluing identities arouse negative emotions

such as anger and fear (Sanchez-Burks and Huy, 2009).

2.3.3 Emotional Dynamics: Negative Emotions Vs Positive Emotions

Emotions whether negative or positive can be viewed as an obstacle to reach desired

outputs which can be decision making, and relationship building (Laery et al, 2013).

In order to balance emotions in a productive way, it should be identified accurately

(Huy, 1999). Emotions elicited by change are mostly negative that influence

employees openness to change (Kiefer, 2005; Fugate et al, 2008; Huy, 2002;

Sanchez- Burks and Huy, 2009). Employees may not care much about outcomes but

respect, power and identity, which if not received can stir strong emotions (Laery et

al, 2013).

People tend to compare theirpast negative experiences of change with the

ongoing change process and out of fear resist change (Eriksson, 2004). Employees

have different perception about change i.e. either resisting or accepting. When

employees display negative emotions, it is an indicator that they are unwilling to

support change (Kiefer, 2005), and are hesitant to trust (Brundin et al, 2008), which

can be detrimental for the organization (Fugate et al, 2008; Brundin et al, 2008). The

underperformers often represent ‘quit-but-stay’ suffer from mood states, absenteeism

23

and presenteeism. These employees experiencing negative emotions seem to be

irritable, aggressive, less enthusiastic, and have nothing positive to say about change

(Furnham, 2002).

The causes identified forstimulating negative emotions mostly relates to

working conditions (management styles, peer behavior, organizational policies and

practices), issues related to job (salary, supervision, status, job security, and task

handling issues) and organizational treatment (downsizing, layoffs and restructuring)

(Kiefer, 2005). The negative emotions recognized related to the above mentioned

causes include anger, resentment, disappointment, anxiety, turnover intention,

reduced performance, decreased trust and commitment (Kiefer, 2005; Moosholderet

al, 2000; Fugate et al, 2008). Frustration, anger, fear etc are few examples of negative

emotions which are shown intensively by employees, when confronted with change

(Liu and Perrewe, 2005). Sadness predicts withdrawal and anxiety predicts avoidance

or escape behavior (Liu and Perrewe, 2005). It has been found that emotions such as

stress, anger, disgust, happiness and satisfaction is experienced with the feeling of

certainty but emotions like hope, surprise, threat, fear and anxiety is likely to occur

with the feeling of uncertainty (Liu and Perrewe, 2005).

Stress is defined as both the stimulus (source of stress or stressor) and the

response (outcome or manifestation of stress) (Vakola and Nikolaou, 2005). It is

related with uncertainty associated with organizational change (Jimmiesonet al,

2004).Lazarus (1993) gave a stress theory which explains a relationship between

individual’s receptivity to change and mobilization. A two-step appraisal model was

given by him in whichthe individual assessed the proposed change on his security. In

the first step, if the employee considers that change is harmful, negative emotions are

provoked whereas if change is considered as an opportunity, positive emotions will

make individuals more receptive to change. In the second step, individual evaluates

his personal resources to deal with proposed change. If he feels he has sufficient

resources he actively responds to change. The criteria for considering change event as

harmful or beneficial depends on individual’s goals and whether they have the

required ability to achieve their goals during transformation. Employees who

voluntarily adopt the change process display more favorable emotional reaction

(Moosholder et al, 2000).

Vakola and Nikolaou (2005) found that employees who are highly stressed

may demonstrate decreased commitment and increased unwillingness to change

24

programs. People having low self esteem feel depressed and helpless, when they are

sure that outcomes will be negative ( Eriksson,2004). Undoubtedly people who are

separated from the organization during downsizing experience emotional turbulence

(loneliness, pessimism, social isolation and anger); they feel that the procedure was

unfair. But the employees who were even not separated from the organization or

layoffs survivors experience emotional impact which is referred as survivor

syndrome; it includes feeling of anger, anxiety, threat to future employment and

resignation (Moosholder et al, 2000; Kiefer, 2005).

2.3.4 Barriers to Perceiving and Managing Emotions

Eriksson (2004) identified few barriers or factors for resistance to change like human

resistance, conflict between competing groups, and employee’s perception about their

identity. Strong beliefs and values of employees about their organization also

constitute powerful obstacle to change.As identified by Beer and Nohria (2000), 70%

of change initiatives fail and the reason is résistance to change which is the outcome

of negative attitude towards change. Resistance to change is normal since the change

process involves going from known to unknown situations (Vakola and Nikolaou,

2005). Kotter and Schlesinger (1979) suggest that there are four major reasons why

people resist change: they are afraid of losing something valuable; they misunderstand

the change and its implications; they believe that the change does not make sense; or

simply, they have a low tolerance for change.

Moosholder et al (2000) gave a concept of ‘psychological ownership’ which

relates to expression of strong emotions when change affectsemployee ownership.

Accordingly an individual has few sensible conditions which explain why he resists or

accepts change. The first condition can be self initiated, incremental or enhances

sense of growth, and is more likely to be accepted. The second condition could be

when change is imposed or revolutionary, it is likely to be resisted. Level of negative

emotions can vary throughout the change process from expectation to

accomplishment (Kiefer, 2005). Participation or involvement in strategic change

process will help the employees to know better what is expected from them and can

trust the management (Huy, 2012). Employee’s commitment to change projects will

reduce negative emotions (Kitchen and Daly, 2002).Some of the key researches

highlighting the employee emotions during change are summarized in table 2.2.

25

Table 2.2 Key Research Papers Related to Employee Emotions during Change S.No Author/ year Title of Paper/

Journal Type of Research paper

Theme of the Paper

1) Huy (2012) Emotions in strategic organization: Opportunities for impactful research/ Strategic Organization

Conceptual paper Explains how individual-level emotions can explain collective, organization-level outcomes, which represent the central interest of strategy research: firm-level processes and performance.

2) Oreg et al (2011)

Change Recipients' Reactions to Organizational Change: A 60-Year Review of Quantitative Studies/ Journal of Applied Behavioral Science

Review based Reviewed 79 quantitative empirical studies of change recipients’ reactions to organizational change.

3) Klarner et al (2011)

Employee Emotions During Organizational Change- Towards a New Research Agenda/ Scandinavian Journal of Management

Conceptual paper Offers a component process definition of emotions and Incorporated the neglected view of emotions as processes that unfold during and across organizational change.

4) Sanchez-Burks and Huy (2009)

Emotional Aperture and Strategic Renewal: The Accurate Recognition of Collective Emotions /Organization Science

Conceptual paper Provides an initial conceptualization of how leaders can adjust their focus to group-level emotions and thus complement existing notions of emotional abilities (e.g., emotional intelligence), which focus on Individual-level emotions.

5) Vakola and Nikolaou (2005)

Attitudes towards organizational change What is the role of employees’ stress and commitment?/ Employee relations

Empirical Study Showing negative correlations between occupational stressors and attitudes to change, indicating that highly stressed individuals demonstrate decreased commitment and increased reluctance to accept organizational change interventions.

6) Liu and Perrewe(2005)

Another look at the emotion in the organizational change: A Process Model/ Human resource Management Review

Conceptual Paper Proposed a four stage cognitive – emotional model of organizational change.

7) Eriksson (2004)

The effects of change programs on employees’ emotions/ Personal Review

Case Study research paper

Discusses on how emotions can become an obstacle for change and how people that are unable to mobilize and act in a changed way become less receptive to change.

8) Huy (2002) Emotional Filtering In Strategic Change/ Academy of Management

Empirical Research

Studied how emotional filtering differentially affects the outcomes of major change project.

26

9) Huy (2002) Emotional Balancing of Organizational Continuity and Radical Change: The Contribution of Middle Managers/ Administrative Science quarterly

Grounded Research/ Case study

Used circumplex model of emotions to identity employee emotional states during radical change.

2.4 MIDDLE MANAGERS: SENSEMAKERS OR CHANGE AGENTS

Implementation of organizational change is a critical issuewhich requires a change of

thinking and attitude which usually needs to start with leadership (Millar et al, 2012).

Turbulent and competitive environment has demanded radical organizational change

which has, in turn brought changes in managerial roles (Hales, 2005).The successful

implementation of change is one of the most challenging managerial jobs (Kuntz and

Gomes, 2012).Organizations seek greater flexibility during radical change which is

the task that generally falls to middle level managers as they are the linking pins or

‘mediators’ (Wooldridge et al, 2008) between strategy and operations ( Mcgurk.P,

2011; Huy, 2001; Likert, 1961). Change in an organization can be directed by some

crucial actor or some broader team which may be the top management or the middle

management or a group (Mintzberg and Westley, 1992; Bhal et al, 2009). Managers

can create meaningful changes in the organization (Caza, 2011) by their role of

change agents (Teerikangas et al, 2011; Wooldridge et al, 2008). Organizational

change needs intense human resource management or people management which is

expected from middle manager (Parris, 2008). So we can say that managing change

has become one of the crucial managerial responsibilities as firms continuously

engage in some kinds of change (Luscher and Lewis, 2008).

2.4.1Defining Middle Management: Tying Strategy to Operation

Huy (2002) described middle managers as “lynchpins” of organizational change,

acting as mediators between top management and the employees.By the term middle

management it is referredto“mediocrity” which is categorized two levels below CEO

and one level above line workers (Huy, 2002b). This designation includes all the

levels of management between the supervisory level and the top managerial level

(Hales, 2005; Parris, 2008; Osterman, 2010). They act like a connector between senior

executives and employees (Shikari, 2011). Middle managers are the important group

in the organization who understands the strategic requirement and perform the

27

significant functions between strategic and front line managers (Mcgurk.P, 2011).

They are also considered as agents of cultural change (Ogbonna and Wilkinson,

2003); as they execute change initiatives by aligning their units to the new strategic

initiatives (Luscher and Lewis, 2008; Currie and Procter, 2005).

Major restructuring of the organization poses challenge to both change agents

and change recipients (Moosholder et al, 2000).Managers are expected to identify the

challenges posed by radical change so that they can understand and prepare

themselves for managing change as it occurs (Mittal and Jain, 2012). According to

Wooldridge et al (2008), middle managers could influence the strategy process either

by improving the quality of communication or by increasing the efficiency of

implementation.For this timely communication is needed which reduces fear and

uncertainty, therefore resistance to change (Vakola and Nikolaou, 2005; Jimmieson et

al, 2004).

Middle managers are supposed to be the leaders in the organization, so the

emotions displayed by them can have an influence on subordinate’s emotions as well

(Sanchez-Burks and Huy, 2009). However, involvement of managers in the

acquisition process in a positive way indicate the employees about the opportunity, on

the contrary lack of involvement will create less interest or negative effect on the

employees (Teerikangas,2010; Vijayalakshmi and Bhattacharyya, 2011; Kiefer,

2005). Employee’s effectiveness and willingness to support change is enhanced by

middle managers display of positive emotions and diminished by display of negative

emotions (Wooldridge et al, 2008).

The middle management leadership has undergone significant changes in last

few years due to globalization, economic and demographical changes that has resulted

in delayering of the organizations (Shikari, 2011).However, their key role in initiating

strategic change (Westley, 1990; Wooldridge et al, 2008), still serves as a link

between disconnected actors and domains (Wooldridge et al, 2008). Implementation

of top management's strategy is the key strategic role of middle-level managers (Huy,

2002b; Likert, 1961).

According to Barton and Ambrosini (2013), strategy implementation can be

defined as “the communication, interpretation, adoption and enactment of explicit

resource-allocation and activity decisions at whatever point in the strategy process

they may occur”. It focuses on the uncertain nature of strategy and strategizing role of

middle level managers i.e. how they take the strategy process, influence and act

28

during the implementation. Westley (1990) identified that middle managers play a key

role or supporting role in initiating strategic change as they are the suppliers of

information and consumers of decisions made by the top managers. As per Likert

(1961), middle managers are like linking pins (Huy, 2002b); so they take action that

had an influence on both upward and downward in strategy formation. In case of

upward influence top management view of strategy formation is affected when they

communicate employee’s attitude towards strategy. In downward influence they tie

strategy to operations and communicate the top management vision to the employees

(Floyd and Wooldridge, 1992; Wooldridge et al, 2008).Strategy formation is done by

the top management but implementation is a task that falls generally to middle

managers ((Floyd and Wooldridge, 1992).

Middle managers are far more effective in making change possible than senior

executive by leveraging informal networks or leading from the middle (Huy, 2002b;

Shikari, 2011: Wooldridge and Floyd, 1990).Floyd and Wooldridge (1992) gave a

typology of middle management involvement in strategy. According to him strategy is

a change process and requires divergent roles of middle managers for successful

strategy implementation. He discussed about four roles played by middle managers

i.e. Championing alternatives and synthesizing information represent upward forms of

involvement, while facilitating adaptability and implementing deliberate strategy are

downward forms.So middle managers act like facilitators and encourage

organizational actors below (Wooldridge et al, 2008). Evidences from previous

researches shows that there is extensive dissatisfaction and demotivation among

middle managers who often perceive that they are excluded from the strategy

processes, which often results in inefficiency (Westley, 1990; Wooldridge and Floyd,

1990).

2.4.2 Emotional Balancing by Middle Managers

Middle management’s role has a clear shift from technical management to a people

management role(Huy, 2002b). Huy (2002) discussed the role of middle managers in

maintaining the status quo and facilitating the change projects. He found that middle

managers demonstrated two types of emotion-management behaviors: (1) emotionally

committing to personally-championed change projects; and (2) attending to change

recipients’ emotions. Based on the study of several change projects, he concluded that

low commitment to change projects lead to organizational inertia whereas high

commitment with low attending to recipient’s emotionsmay result into chaos.

29

Leader’s ability to demonstrate sensitivity and attentiveness to followers’ emotions

during the change process may prove critical to facilitating organizational change

(Wooldridge et al, 2008).

According to the first role given by Huy (2002) i.e. emotionally committing to

personally championed change projects, middle managers approach towards change

can be identified. The degree of commitment by middle level managers is directly

proportional to the desired change outcomes (Teerinkangas, 2010). The definition of

commitment is a traditional one, where the committed person is seen as someone for

whom work is primary and the other non work activities are secondary (Parris,

2008).Commitment to change is a state where managers feel they are aware of the

change programs, have adequate skills to implement it, feel motivated and

empowered to take vital action to share purpose of change (Jaros, 2010). Individuals

join the organization with their personal needs and expectations, when these needs are

satisfied; the probability of increasing commitment is high (Vakola and Nikolaou,

2005).

Commitment relates to how consistent managers act to take strategic decision,

readiness or intention to perform the given task and the extent to which he support the

goal and objectives of a change strategy (Barton and Ambrosini, 2013). It reflects the

quality of linkage between manager and organization (Vakola and Nikolaou, 2005).

Managers who are personally committed to change projects demonstrate enthusiasm,

show involvement and take personal responsibility for asuccessful implementation

whereas low commitment by managers creates significant obstacles to effective

strategy implementation (Neubert and Cady, 2001). Managers are often conscious to

demonstrate their commitment to the organization and create a positive impression in

their roles (Parris, 2008). Low commitment approach emphasizes a bureaucratic,

culture and a ‘high commitment’ approach emphasizes empowerment and shared

goals (Ogbonna and Wilkinson, 2003).

Middle managers role of attending to recipient’s emotions (Huy, 2002a), is

directly linked to their commitment to change projects. A manager who is high on

commitment tries to be high on attending to his subordinates emotions too, resulting

in desired group behavior i.e. group adaptation. They are concerned with the

employee’s perception of fairness of work related issues especially during radical

change and assure employees participation in decision making and involvement in

change projects (Barton and Ambrosini, 2013). Middle managers give more attention

30

to people problems and show willingness to create a new learning environment where

change is treated as a part of everyday life (Beatty and Lee, 1992). Sharing of

information by middle managers about change will help employees understand the

reasons and need for change (Roberts and Appelbaum, 2009).

Employees go through a process of sense making for which they need

information for establishing a sense of prediction and understanding of the situation to

reduce anxiety that arises from uncertainty (Jimmiesonet al, 2004).For the success of

any change project focus should also be given to micro-level that impacts macro level

changes i.e. individual emotions should be tried to align with the strategic goals

(Taylor, 2011).Attending to middle managers emotions is also important while

implementing strategy, with regard to their social identities and how they can be

motivated for change (Sanchez-Burks and Huy, 2009). Figure 2.1 depicts a model

adopted from Huy (2002a), showing how emotional balancing during radical change

can lead to organizational adaptation.

Figure 2.1 A Model of Emotional Balancing during Radical Change (Adapted from Huy, 2002a)

Middle level managers cannot ignore their subordinates emotional well being

because if they do so, it will lead to arousal of negative emotions and group chaos in

the organization (Brotheridge and Lee, 2008; Huy, 2002b). They need to deal with

organizations emotional capability i.e. to recognize, monitor, discriminate and attend

emotions of individuals that has an effect on collective emotions and group

performance (Huy, 2002a).Managers should confront the employees, deal with their

raw emotions and to show compassion (Furnham, 2002). Positive support by

supervisor has a positive impact on job satisfaction and commitment whereas fair

Emotional Commitment to Change Project

Middle Managers

Emotional Balancing


Emotional States Change Project/

Group Adaptation

31

treatment reduces the risks of withdrawal in layoffs and downsizing (Kiefer, 2005).

Employees trust in the ability of management effect positive outcomes.

Participative management style is more effective which assures employees

participation in decision making and involvement in change projects (Barton and

Ambrosini, 2013); so managers should listen to the problems and views of

subordinates to ensure fairness of work related issues during change process (Beatty

and Lee, 1992).It was suggested that less communication during change may lead to

failure of change initiatives due to mistrust because organization do not provide

employees with meaningful information to justify the project (Cartwright and

Holmes, 2006). Thus timely and accurate information should be provided either

through formal or informal communication, though all the information cannot be

disclosed in the initial phase but few important issues should be discussed (Jimmieson

et al, 2004).

The responsibility of middle level managers is to provide the required support

(Kiefer, 2005) to balance employee’s emotions which can be of three kinds as

identified by Herzig and Jimmieson (2006) i.e. Instrumental, informational and

appraisal. Instrumental support includes providing resources at the right time,

informational support is providing necessary information and appraisal support is

proving feedback to employees. The desired group behavior achieved by the efforts of

middle managers can be either group adaptation or group chaos.

2.4.3Middle Management: Competencies and Role Issues

Organizational change affects both day-to-day activities of managers and their

expectations; it may alter their roles and responsibilities (Reilly et al, 1993). The role

of middle management has changed significantly (Stroker, 2006; Shikari, 2011). To

confront change they need long overlooked capability (Furnham, 2002). Middle

managers are considered as change agents but in the process of emotional balancing

of employees during radical change, they are also likely to express various emotions

regarding the impact of transformation (Huy, 2002b, Moosholder et al, 2000). The

role of manager’s emotions in the change process has a significant impact and their

interaction with employees influences their behavior (Brundin et al, 2008).

Sometimes middle managers are doubtful about their roles and what is expected from

them, thus they can drive their teams in the wrong direction (Shikari, 2011). Change

32

process enhances manager’s expectations and makes them emotionally excited about

future possible success (Liu and Perrewe, 2005).

Middle managers personal characteristics do make a difference in strategy

formulation and implementation (Hitt and Tyler, 1991). They are more and more

being expected to function at strategic and tactical level, which is not possible without

proper training (Shikari, 2011). Regular communication, clearly defined objectives

and regular feedback sessions help middle management to be more effective in their

roles (Shikari, 2011). Middle manager’srole involvesa greater concern with ‘softer’

people management issues (Hales, 2005). According to Furnham (2002), a change

manager’s success can be determined by their expertise in dealing with the

underperformers. Change oriented leaders need emotional awareness in self and

employees to avoid emotional distress (Furnham, 2002). Clarity in goals, purpose and

values of agents are important as they can influence timing, sequencing and process of

change (Huy, 2002b).Middle managers should have these factors for maintaining

trust: ability, benevolence and integrity (Creasy et al, 2009). Managers display

appropriate emotions depending on the actions they want their employees to perform

(Brundin et al, 2008).

The flattening of organization has lead to reduction of hierarchical level and

resulted in wider span of control and enlarged role for middle managers such as

decision making, people- management and directing organizational change, indicating

positive reactions to increased responsibility and variety of roles (Parris et al, 2008;

Stroker, 2006). Several studies show how middle managers roles have been changing

and how they are affected by organizational change ((Moosholder et al, 2000; Parris

et al, 2008). The changed role or ‘new’ middle management role has led to high

demands concerning skill, behavior and competencies (Stroker, 2006). Changing

experience of middle managers role transition has lead to role conflicts and role

ambiguity (Moosholder et al, 2000). Role conflict may be prevalent during

organizational change which is in contrast with the expectations of the old

organization or it may not be clearly replaced with the expectations of the new

organization (Jimmieson et al, 2004).

Middle manager are trapped in the middle which results in frustration, stress

and fatigue (Parris, 2008) as they have to face three key issues i.e. lack of control, the

new importance of information and better ‘people’ skills (Stroker, 2006). Stroker

(2006) mentioned three criteria for middle managers effectiveness i.e. organizational

33

commitment, job satisfaction and burnout. Middle managers who actively participate

in the change process demonstrate high energy level and support (Westley, 1990).

They should be high on emotional intelligence which is the ability to monitor one’s

own and other’s feelings, and to use this information to guide employee’s emotions

and actions (Laery et al, 2013).

During organizational restructuring and downsizing, attention should be given

to even middle level managers emotional reactions, this could lead to better

appreciation of their experiences and enhance commitment in the project ( O’Neill

and Lenn, 1995).Enlarged middle managers role has intense focus on employee

involvement and empowerment (Parris et al, 2008). They are characterized by being

performance oriented (Stroker, 2006). Organization seems to be depended on middle

management as they are in key roles, like strategists, administrators, trainers,

motivators, communicators and counselors (Shikari, 2011).

2.4.4 Aligning Strategy, Leadership and Culture

Employees are more committed, experience job satisfaction and less exhausted when

their middle managers show considerable leadership behavior (Stroker, 2006). As a

consequence of radical change, role of middle managers has shifted from supervision

to team leadership (Hales, 2005). Transformational leadership emphasize on the

visionary and interpersonal aspect, which push through the organizational change

(Beatty and Lee, 1992).There are numerous positive outcomes of transformational

leadership such as positive effects on subordinates; job satisfaction, organizational

commitment, net profit margin and leaders’ effectiveness during organizational

change (Groves and Larocca, 2011). Transformational leaders or middle managers

understand and predict followers’ needs and emotions, which leads to greater

interpersonal sensitivity and higher quality relationships with the

subordinates(Groves, 2006).When change goes well itis because leaders and

managers were insightful, charismatic, inspiring and following transcendental goals

(Teerinkangas, 2010; Brotheridge and Lee, 2008).

Maintaining the Momentum of Change

During radical change, leadership seems to experience a type of crisis and demands

challenging roles from the leaders to influence employee readiness to support change

(Nguyen and Kliener, 2003).Middle managers are as important as senior executives in

34

facilitating organizational change (Stroker, 2006) and can make an important strategic

contribution (Balogun, 2003). The roles of middle managers discussed by Huy, 2002

i.e. ‘Commitment to change’ and ‘attending to recipient’s emotions’ assist in

maintaining the status quo and facilitating the change projects. Middle level managers

should formulate strategies for readiness and to reduce resistance among the

employees affected by change as organization transformation results in heightened

emotions(Brotheridge and Lee, 2008). Employee readiness may comprise individual’s

perception and emotional willingness to accept change (Moosholder et al, 2000).

The key challenge for the change agents during the change process is to

understand and manage the emotions of change recipients (Liu and Perrewe,

2005).The emotion- management activity is called ‘emotional balancing’ which can

drive change and can lead to achievement of outcomes (Huy, 2002a). In the model of

emotional balancing, middle managers are the change agents as they can understand

employee’s emotional needs and address their well being during times of radical

change (Huy, 2002b). Huy (2002), in his research tried to explore the role of middle

managers in managing or mismanaging employee emotions in order to facilitate

organization adaptation.

Transformational leaders influence their subordinates by developing and

communicating a collective vision and inspire them to look beyond self interest for

the benefit of the organization (Groves and Larocca, 2011). Honest and timely

communication is a crucial variable in determining the success of organizational

change process (Teerinkangas, 2010; Yongmie and Perrewe, 2005; Liu and Perrewe,

2005). Effective and informative communication serves to reduce employees stress,

depression, rumors, departure and low productivity and enhances managements’

credibility by establishing an open culture (Emmanouilides and Giovanis, 2006).

Transparency in management style and communication of change related information

should be ensured on part of middle managers (Shikari, 2011). At the time of

uncertainty information received about the change programs, reduces anxiety and

frustration, and enhancesemployee’seffectiveness to deal with the changing

environment (Liu and Perrewe, 2005).

Effectively leveraging middle managers role is important to an organization’s

success (Shikari, 2011). Radical change demands great innovative effort by middle

managers (Eriksson, 2004). Senior managers should give middle managers a system

to lead as change agents, empower them for enhancing company performance

35

(Shikari, 2011). They can split the responsibilities among people who have

complementary skills to avoid overload and underperformance (Huy, 2002b).

Some of the key researches discussed so far are summarized in table 2.3 as follows:

Table 2.3 Key Research Paper on the Role of Middle Managers in Radical Change S.No Author Title of paper/

Journal Type of Research Paper

Key Theme

1) Huy (2011) How Middle Managers’ Group-Focus Emotions And Social Identities Influence Strategy Implementation/ Strategic Management Journal

Empirical Study This study contributes to the strategy implementation literature by linking senior executives’ actions and middle managers’ behaviors resulting in strategy implementation and outcomes.

2) Shikari (2011)

The middle management leadership/ Human Capital

Conceptual Paper Emerging middle management role and leveraging it effectively, however, is important to an organization's success.

3) Wooldridge et al (2008)

The Middle Management Perspective on Strategy Process: Contributions, Synthesis, and Future Research/ Journal of Management

Conceptual Review paper

Provided an overview of strategy research from a middle management perspective. Research evidences are listed for the significant impact that research from a middle management perspective has had on the field’s understanding of how strategy forms in large organizations.

4) Stoker (2006)

Leading middle management: consequences of organizational changes for tasks and behaviors’ of middle managers/ Journal of General Management

Empirical Study Consequences of organizational change on middle managers role were investigated and indicated a major shift in role which led to focus on soft leadership behavior.

5) Balogunand Johnson (2004)

Organizational Restructuring and Middle Manager Sensemaking/ The Academy of Management Journal

Case Study The article traces the development of middle managers’ mental models during an forced shift from hierarchical to decentralized organization. Findings indicate that middle managers were found to rely on informal discussions with peers to understand and implement change because of remote top managers.

6) Huy Q.N (2002)

Emotional Balancing of Organizational Continuity and Radical Change: The Contribution of Middle Managers/

Grounded research/ case study

Gave the theory of ‘emotional balancing’ by middle managers and explains how emotion management facilitates radical change. He conducted a longitudinal grounded research.

36

Administrative Science Quarterly

7) Huy (2001) In Praise of Middle Managers/ HBR

Conceptual Paper Discussed about the roles of middle managers in implementing change like: the entrepreneur, communicator, therapist etc.

8) Reilly et al (1993)

The Impact of Corporate Turbulence on Managers' Attitudes/ Strategic Management Journal

Empirical Study Explores the relationship between organizational turbulence and managers' attitudes.

9) Floyd and Wooldridge (1992)

Middle Management Involvement In Strategy And Its Association With Strategic Type: A Research Note/ Strategic Management Journal

Empirical Study The study builds a typology of four middle management roles in strategy (championing, synthesizing, facilitating, implementing) and links these to organizational strategy. Level and type of middle management strategic involvement are found to vary with type of strategy.

10) Wooldridge and Floyd (1990)

The Strategy Process, Middle Management Involvement, And Organizational Performance/ Strategic Management Journal

Empirical Study Although the study did not find links between middle management consensus and performance, middle managers’ involvement in strategic planning was associated with higher levels of consensus and financial performance.

11) Westley (1990)

Middle Managers And Strategy: Micro dynamics of Inclusion/ Strategic Management Journal

Conceptual Paper Examines the role of middle management in strategic processes. “Middle managers may either be excluded or included in such ‘strategic conversations’, but inclusion does not guarantee satisfaction”.

2.5 MERGERS AND ACQUISITIONS: A CONCEPTUAL REVIEW OF

RESEARCH DOMAIN

Mergers and Acquisitions (M&As), involves the integration of two organizations in to

one combined organization (Cartwright and Cooper, 1995). When the integration is

completed, it means that two previously autonomous firms will now operate as a

single economic and social entity (Agarwal et al, 2004).The key driving forces

leading towards mergers and acquisitions are environmental changes (Mittal and Jain,

2012).The primary motivation for M&A deals is the quest for growth (Teerikangas,

2010). When internal growth initiatives do not materialize, or there are no other

growth options, M&A transactions prove to be the only way to create growth

37

(Cartwright and Schoenberg, 2006). It provides enormous benefits other than financial

such as improvement in operational efficiency, diversified managerial capabilities,

market synergies, competent employees, technological enhancement, increased

market share, risk diversification, rapid growth and development (Mittal and Jain,

2012).

Despite the growing trend in M&A; the research evidence shows that most of

the M&A do not reach the performance target (Teerikangas, 2010; Emmanouilides

and Giovanis, 2006; Cartwright and Schoenberg, 2006). Corporate history is filled

with instances and examples of how some big M&Afailed miserably.In fact, as per

KPMG report (1997), the failure rate of M&A has been as high as 70%. So the

question that begs an answer is what the reasons are for such M&A’s to fail and how

can it be avoided. Before identifying the reason for such failures, it is imperative to

study the merger wave and the motives behind that.

2.5.1 Merger waves

Since the mid-1990s, the world economy has experienced an unprecedented merger

wave. The major reasons for these merger waves revolve around some underlying

economic or technological factors; and macroeconomic environment (viz., GDP

growth, interest rate levels) (Andrade et al, 2001). Cordeiro (2015) discussed about

the seven merger waves. According to him, the first merger wave began in 1893

which was associated with the theme of "Merging for Monopoly." This phase includes

horizontal mergers in the basic manufacturing and transportation industries mainly

dominated by large steel and railroad mergers. Then the second merger wave existed

between 1919-1929, was associated with the theme of "Merging for Oligopoly." It

includes fewer monopolies, more oligopolies, vertical mergers, and conglomerates.

The third merger wave existed between 1945-1973, is known as "Conglomerate

Merger." It is characterized by the conglomerate mergers and equity-financed

mergers. The fourth merger wave, which existed between 1981-1989, is known as

"The Mega merger," or "Takeover" wave. In this wave the size and prominence of

acquisition targets were much greater than before. Hostile mergers were dominant

during this phase.The fifth merger wave, which existed between 1992-2000, is known

as "Strategic restructuring” and it emphasized longer-term strategy rather than

immediate financial gains. The sixth merger wave, which existed between 2002 and

38

2007, began with a boom in global economies and focused on post integration phase

of M&A.

2.5.2 Factors Affecting Successful M&A’s

Mergers & Acquisitions are considered as vital for the rapid growth and development

of business enterprises (Cartwright and Schoenberg, 2006). They create opportunities

to realize many corporate objectives which can be easier achieved after the synergy of

two enterprises complementing each other (Mittal and Jain, 2012; Kiefer, 20005).

According to Teerikangas et al (2011), researches have not still captured the

underlying causes of underperformance of M&A. One most prominent reason could

be poor synchronization which has been identified as a frequent cause behind poor

acquisition performance (Agarwal et al, 2004). Poor synchronization may also include

human resources, who are considered the most important element affecting success or

failure to M&A’s decision (Teerikangas, 2010; Mittal and Jain, 2012). While going

for a mergers decision top managers fail to realize that people can make or break the

alliance (Emmanouilides and Giovanis, 2006).

It was found that successful acquirers were 40 percent more likely to conduct

thorough human and cultural due diligence than unsuccessful buyers (Marks and

Mirvis, 2011; Nguyen and Kliener, 2003). The reason for due diligence is most people

having expertise, knowledge, loyalty to other employees often leave the organization

which was ultimately followed by others (Mittal and Jain, 2012, Teerinkangas,

2010).It was observed that both employees and managers are not ready to cope with

new situation (Emmanouilides and Giovanis, 2006). To deal with such situation

specific HR practices, such as training employees and using effective communication

to address human resource stress and uncertainty and adjusting other practices

(recruitment, reward and labor relations) should be initiated so that firms strategy are

likely to add to integration capabilities (Gomes et al, 2013).

The research on post M&A performance investigates the complementarily and

compatibility of the merging firms. Research on complementarily has insisted on

implications for financial performance (e.g., Lubatkin, 1983; Singh and Montgomery,

1987).Acquisition performance is determined by many factors which includes; the

motives behind the strategy, the capabilities of the firms and their synergies, the price

paid for target firm, and the post-acquisition integration of the firms (Agarwal et al,

2004). Elimination of assets, cutting back employees indifferent departments and

39

reducing incompetent management practices can improve the performance of mergers

(Capron, 1999).The loss of valuable expertise through the departure of key executives

can be a vital factor affecting the outcomes (Datta, 1991).Changes made to the

existing system after an acquisition are expected to elicit strong reactions and the

acquired firm may witness a loss of identity which can increase anxiety, distrust and

conflict resulting in poor acquisition performance (Datta, 1991; Gomes et al, 2013).

2.5.3Why M&A’s fail?

Long-term success of any M&A can be achieved only through effective process

management, honest communication and sensitivity to the expectations of individuals

on both sides of the acquisition (Birinshaw, 1998; Mirvis and Marks, 1992). The way

the acquisition process has been managed is the key challenge in M&A success

(Teerikangas et al, 2011). It was found from previous studies that 70% of M&A did

not meet the performance target (KPMG, 1997; Beer and Nohria, 2000). Researchers

suggested that human factor could be the most potential reason for failure of M&A

(Emmanouilides and Giovanis, 2006; Cartwright and Cooper, 1993).In the researches

on friendly versus hostile merger, it was found that friendly merger result in long term

positive employee’s reactions while hostile mergers result in long term negative

employee reactions (Teerinkangas, 2010).Whether it is resisted or embraced, change

is a loss of experience, particularly a loss of familiar routines. The more

psychologically important things are left behind; there are more chances thatone’s

behavior will take the form of resistance (Marks, 2006). People issues are

complementary to the success of M&A, but are often ignored or overlooked at the

time when decisions to merge are taken (Emmanouilides and Giovanis, 2006). The

reason for employee’s poor performance could be the cultural challenges involved,

poor communication (Emmanouilides and Giovanis, 2006) and manager’s difficulty

of adequately managing the post integration phase (Teerikangas, 2010;

Emmanouilides and Giovanis, 2006). Employee resistance may be due to new

relationships and environment (Kiefer, 2005), which can disable the realization of

synergies potential available after acquisition (Teerinkangas, 2010).

The introduction of mergers and acquisitions involve introduction of new

management, major restructuring, downsizing, layoffs and new strategic initiatives

(Kiefer, 2005; Teerinkangas 2010).Change in status may also lead to hurting of

personal feelings and lesser responsibilities (Emmanouilides and Giovanis, 2006).

40

M&A can bring important changes in the behavior of employees which can be good

or bad for the firm. Employees satisfied with the firm can contribute drastically to

firm’s profitability as compared to those who are unsatisfied and less motivated

(Mittal and Jain, 2012).

2.5.4 Employee Reactions and Behavior during M&A

Researches on human aspect of M&A attempted to explore the emotions experienced

by employees and reasons behind that (Kusstatscher, 2006). Most of the study

revealed that emotions are heightened during acquisition phase. M&A’s create most

dramatic changes that people will experience in organization (Emmanouilides and

Giovanis, 2006). Value creation is a most difficult task owing to integrating

employees of merging entities (Mittal and Jain, 2012; Keifer, 2005; Teerinkangas,

2010). The reason behind perceiving mergers as threat rather than opportunity could

be employee’s reactions leading to uncertainty rather than motivation (Teerikangas,

2010).

Teerinkangas, 2010 discussed that employees reactions depends on acquirer’s

organizational attractiveness which includes (a) degree of inter firm organizational fit

and (b) historical relationship. Degree of organizational fit can be based on firm

relatedness (Creasy et al, 2009), high degree of organizational fit is believed to be an

opportunity whereas low degree as threat. In case of firms when there is friendly

historical relationship the employees display positive feelings for the prospects of

acquisition (Teerinkangas, 2010). Another researcher Islam et al (2012) identified

four broad factors resulting in negative emotion which includes “degree of awareness

for future growth and prospects after merger, degree of uncertainty of employees after

merger, degree of future growth of an industry and degree of personal problems of an

employee”.

Different theories like anxiety theory, social identity theory, acculturation

theory, role conflict theory and organizational justice theory can be used to predict

employee’s behavior during stages of M&A (Seo and Hill, 2005). Research which

focused on negative impacts of change addressed the following variables like survivor

syndrome, injustice, fear of job loss, decreased commitment towards management

(Creasy et al, 2009), absenteeism, low morale, job satisfaction(Islam et al, 2012) and

motivation (Kiefer, 2005; Moosholder et al, 2000). Negative change outcomes at the

firm level include talent withdrawal, absenteeism (Islam et al, 2012), lower

41

productivity, less innovation and reduced economic benefits (Creasy et al, 2009).

Employees assume additional responsibilities which can have traumatic effects on

them like layoffs, turnover, stress and illness (Seo and Hill, 2005).

During M&A’s, it is not the asset, technology or infrastructure that is difficult

to integrate but it is more the people. It is comparatively easier to change processes

and structures rather than people (Furnham, 2002). People issues were considered

as “Soft” issues but when it is ignored the organization faces the hard consequences

(Robert and Appelbaum, 2009; Teerikangas, 2010).

Managing the Cultural Differences

Mergers and acquisitions are considered as the synergies of combined business but the

issue remains that who will manage and run the company (Mittal and Jain, 2012).

Acculturation can be a result of balanced merging of two group cultures (Marks and

Mirvis, 2011). Greater cultural difference and conflicts between the merging firms

accounts for less attraction for the acquiring firm (Creasy et al, 2009) and vision for

future, and is likely that employees react negatively to an acquisition (Teerinkangas,

2010). Then the“US versus THEM” attitude is greatest among perceived external

threat (Marks and Mirvis, 2011). Merged entity member want to preserve their own

culture by choosing to adapt an individualist role leading to extensive resistance

termed as “culture clash” (Creasy et al, 2009). Members of a particular organization

show a positive bias towards members of their own community and negative bias

towards the member of merged entity (Marks and Mirvis, 2011).

Important issues during integration include the challenge to get people

involved, spreading corporate culture, having a sense of purpose and having goals

(Emmanouilides and Giovanis, 2006). Continuity plays a key role during

acculturation by determining the level of employee’s relatedness with the newly

combined organization (Creasy et al, 2009). Middle manager plays the role of

“cultural carrier” which enables organizational culture change. They are responsible

for the extent to which acquiring firms practices are transferred into acquired firm

(Teerikangas et al, 2011).

42

2.5.5 Middle Manager’s Efforts in Promoting the Acquisition towards Success Top managements are primarily concerned with the financial aspects of the merger

and forget to look after the employees affected by the changes (Emmanouilides and

Giovanis, 2006). The role, behavior and attitudes of managers have an impact on

M&A processes. ‘Emotional balancing of the employees’ by middle level managers

has been highlighted as a possible means of enhancing change outcomes (Nasim and

Sushil, 2011).

Negative emotions are more dominant in employees of acquired firms as they

face the situation of “uncertainty” or “stressful psychological state” such as fear of

downsizing, anxiety etc (Herzig and Jimmieson, 2006).Middle managers act as

emotion managers to identify the responses for change and understand the importance

of cultivating positive emotions during M&A (Kusstatscher, 2006).Employees with

positive emotions may promote decision making to maintain his positive state like

taking risk when success appears likely while being alert in the odd situation (Staw et

al, 1994). Positive emotions broaden people’s mindsets to encourage them to accept

challenges so that they can contribute willingly to the success of integration of

merging firms (Kusstatscher, 2006).Riggio (2007) identified that managers who are

emotionally linked are more likely to generate a positive environment at workplace.

Emotionally sensitive managers are able to identify and manage employee’s negative

moods to influence the change process.

Pre-acquisition phase is a learning stage, where the acquirers tend to reduce

the information concerning the merger and manager’s role has been assumed to start

(Teerikangas et al, 2011). Organizational dependency on innovations by middle level

managers for the survival of the entity during change and steering the strategy

implementation process is an unavoidable task (Marginson, 2002) which shows that

they had diverse insights (Huy, 2002b). When the two groups of managers belonging

to the respective firms are aware of each other’s orientation and positions on issues,

coordination is easier to achieve due to timely conflict resolution and a close

correspondence between expected and actual behaviors (Agarwal et al, 2004). Culture

management is an important part during post acquisition phase (Marks and Mirvis,

2011).

Middle managers role as change agent facilitates the integration process

through which the acquired firm gradually molds its way of working, its practices and

43

structure. As a change agent, they help to encourage change, ensures integration

progress, which is a sign of support (Teerikangas et al, 2011).They make a lot of

effort in finding the right balance between keeping the entity working and promoting

radical change. They can make significant changes by making employees cope with

the transformation and adjust in new corporate life (Emmanouilides and Giovanis,

2006).Coping is a transactional process between an individual and his environment

which has a significant influence on change outcomes (Fugate et al, 2008). Managing

the stubborn, negative, frequently absent employees is a challenge, thus motivating

the underperformer is a key aspect of change manager (Furnham, 2002). Middle

managers need to secure the employees commitment towards new parent firm


Mergers usually forces companies to choose between two equally competent

candidates for corporate positions that can have psychological effect on employees

resulting in decreased commitment (Reilly et al, 1993). Feeling of insecurity and

uncertainty, resulting from a process of trying to solve problems has potentially

negative outcomes (Brundin et al, 2008). Middle managers adopt a more participative

form of management concerned to secure high performance through commitment

rather than control (Hales, 2005). Involvement of lower level employees feels their

contribution and become open for change (Herzig and Jimmieson, 2006).They tried to

understand employee’s emotions, effectively manage them and use that to achieve

better outcomes (Laery et al, 2013).

Middle managers role of managing emotions i.e. emotional balancing process

facilitate change process (Huy, 2002a). They should be empowered with adequate

authority to promote trust, deal with conflict, communicate information timely and

should correctly represent the opinions and ideas (Shikari, 2011). Positive signals

from middle managers like achieving a successful outcome can lead to decline in

employee’s perception of risk and uncertainty about the project (Brundin et al, 2008).

Managing emotions is more than identifying them and setting them aside. Employees

get nervous, disturb, behave absurdly and need emotional support (Furnham, 2002).

Middle managers not only provide training to their employees but also provide

emotional support through transition phases (Parris et al, 2008). Mentoring is

positively related to employee related outcomes (Stroker, 2006). It was found that

direct and honest communication can reduce the negative outcomes in a merger and

44

can increase employee’s support for change, job satisfaction and commitment for the

organization (Liu and Perrewe, 2005; Huy, 2001).

Coping with heightened and conflicting feelings can be termed as “balancing

act”(Leary et al, 2013). Underperformance does not entirely depend on the employee

but the way they are managed (Furnham, 2002). Acquired firm employees gain

support, aid and capability which enabled value creation as the target came to function

(Teerikangas et al, 2011). Middle managers should focus both on process and people

to enhance change outcomes (Stroker, 2006). According to Brundin et al (2008),

emotional displays of middle managers are important signals which influence the

willingness of employees to participate and support change programs. Middle

managers commitments soothe employee doubts and enable employee engagement in

dynamic work rather than rumoring and unproductive actions (Teerikangas et al,

2011). If a manager is committed, it will be easier to achieve organizational goals

(Caza, 2011).

Middle managers are simply not responsible for guiding work but also for

actively managing performance and are a key source of influence on organizational

outcomes (Wooldridge et al, 2008). Middle managers who help people cope with the

change process and by attending to subordinates negative emotions, may cause a

positive shift in emotional responses and facilitating smoother implementation (Huy,

2002a).Managerial action throughout the process impacts the acquisition performance

(Teerikangas et al, 2011).Middle managers enable value creation and reduce value

leakage by ensuring business continuity and maintaining firm’s initial value


2.5.6Expected Synergies from M&A: Desired Change Outcomes/ Performance

Synergy from M&A can be achieved when the value from the amalgamation of two

merging firms exceeds the value of both the firms when acting independently

(Capron, 1999; Seth et al, 2002; Napier, 1989). The focus of research in strategic

management of M&A has been on the identification of strategy and process aspects

that may explain performance (Cartwright and Schoenberg, 2006).Some scholars have

pointed out that synergy potentials can be obtained by strategic and organizational fit

(Datta, 1991; Capron 1999; Gomes et al, 2013), but their achievement depends

entirely on the ability to manage the post-acquisition process in an efficient manner

(Datta, 1991). According to the strategic fit concept the pre-mergerrelatedness

45

between acquirer and acquiring firms generate synergy potential, which is a key

determinant of value creation (Capron, 1999; Singh and Montgomery, 1987). It was

also found that if both strategic fit (synergy potential) and organizational fit factors

(cultural differences) are taken into account during integration process, M&A

performance is better (Gomes et al, 2013).

According to Hitt and Tyler (1991), there should be careful analysis of

external and internal environment with the organizational fit (Gomes et al, 2013;

Datta, 1991); an important criterion for taking acquisition decisions. Whereas

researchers from organizational behavior emphasized more on appropriate decision

making, negotiation and smoother integration process as an indicator of desired

outcomes (Cartwright and Schoenberg, 2006; Bhal et al, 2009).Studies related to

M&A performance have suggested different parameters for measuring

outcomeswhich could be either financial or non-financial outcomes (Mittla and Jain,

2012, Datta, 1991). Singh and Montgomery (1987) identified two motives for mergers

i.e. financial or value maximizing motives and managerial or non-value maximizing

motives. The value maximizing motives recommend that value creation for

shareholders is the most important reason behind any merger (Zollo and Singh, 2004;

Schmidt and Fowler 1990) whereas the non-value maximizing motives intends to

decrease uncertainty in firm’s environment (Napier, 1989; Gomes et al, 2013).

Schoenberg (2006) also suggested multiple performance measure to study post

integration outcome, which includes cumulative abnormal returns,

managers’subjective assessments, expertinformants’ subjectiveassessments and

divestment.

Zollo and Meir (2008) reviewed various approaches to measure acquisition

performance which is classified according to short term and long term performance.

Short term performance refers to abnormal returns and operating cash flows whereas

long term performance includes long term financial performance, employee and

customer retention. Mittal and Jain (2012) also emphasized that financial outcome

like profitability can be easily improved if the other non-financial outcomes like

operating, marketing and human integration are achieved. Ouakauak et al (2014),

distinguished acquisition outcome in two types i.e. financial outcomes such as Return

on investment (ROE) and non- financial outcomes such as employee and stakeholder

satisfaction. So the significance of both financial and non-financial outcomes seems to

be well established.

46

Financial Outcomes

Most of the studies on financial performance have considered abnormal returns as a

measure of performance (DattaandPuia,1995; Zollo and Singh, 2004; Schmidt and

Fowler 1990). Datta and Grant (1990) used the market model and stock market

returns to access the acquisition performance, which has consistently resulted in value

creation for shareholders. But the stock market returns to shareholders merely reflect

performance expectations not actual outcomes (Schoenberg, 2006). Schmidt and

Fowler (1990) used accounting and capital market data to study financial performance

of the firm. The financial synergies from the merger can be motivated by the desire to

improve price earnings ratio or sales growth (Datta, 1991). But when the deal is

overvalued, it becomes difficult to achieve an adequate return (Gomes et al, 2013;

Hitt et al, 2009).

Non-Financial Outcomes

Non-financial outcomes can be in terms of smoother task, marketing, cultural and

human integration. The task integration is the process or operational perspective

measured in terms of resource sharing (Datta, 1991). Achievement of operational

synergies is also an important aspect of M&A performance (Datta, 1991; Cartwright

and Cooper, 1996). It can be achieved from combining operations of two separate

units which would be operating together (for example a joint sales force) or from

knowledge transfers (Porter, 1985).The main objective of post-acquisition integration

of operations is to make more effective use of existing capabilities (Datta, 1991). It

may lower the cost of the involved business units or may enable the company to offer

unique products and services (Homburg and Bucerius, 2005).The process perspective

is focused on the actions taken by management to direct the post-acquisition

integration process (Cartwright and Cooper, 1996).

Homburg and Bucerius (2005) explored how marketing integration (cost

saving and market performance) impact the key performance measure i.e. the

financial outcomes. Related acquisition provides greater synergistic benefits arising

out of economies of scale and scope which in turn lead to improved performance

(Datta, 1991; Capron, 1999).Market share can be increased by geographical extension

of the market and through product line extension (Capron, 1999). Rate of innovation

is also one of the performance criteria (Correia et al, 2013), it can increase customer

47

value by using superior innovation capability of the merged firm to improve product

features or to enhance marketing effectiveness (Capron, 1999; Hitt et al,

2009).Redistribution of marketing resources has an impact on firm performance

(Homburg & Bucerius, 2005).

Both strategy and organizational behavior scholars highlight that inappropriate

decision-making, and management during integration processes can lead to inferior

acquisition outcomes (Mittal and Jain, 2012; Bhal et al, 2009; Datta, 1991).An

acquisition brings together the management of two organizations, with practices

which might be similar or very different. This is a situation called ‘cultural

ambiguity’, and is characterized by uncertainties concerning whose practices and

culture will dominate (Datta, 1991). Poor cultural fit have a negative impact on

acquisition performance (Datta, 1991; Gomes et al, 2013). Cultural differences have

been negatively associated with various accounting measures, stock market value and

financial performance (Datta, 1991; Datta and Puia, 1995; Gomes et al, 2013; Marks

and Mirvis, 2011). Cartwright and Cooper (1993) highlighted that acquisition motive

should be initiated after examining the cultural compatibility rather than focusing on

financial and strategic perspectives only.

The main obstacle for facilitating change is human resistance (Szabla, 2007).A

merger demands smoother human integration during post-merger phase. Human

integration is defined as the creation of positive attitudes towards the integration

among employees on both sides(Kusstatscher, 2006).Human resource challenges

during the post-merger phase may prevent exploitation of the possible synergy that

can arise from sharing resources and transferring skills (Gomes et al, 2013; Correia et

al, 2013).The reactions of employees like anxiety, uncertainty, decreased

commitment, turnover, poor performance and absenteeism influences merger

effectiveness (Napier, 1989). The literature highlights the significance of non-

financial outcomes as drivers of financial outcomes. Some of the key papers for M&A

and post-merger outcomes are presented in Table 2.4.

48

Table 2.4 Key Research Shaping the Concept of Post-merger Outcomes

S.No Title Author Theme Key Theme 1. Marks and

Mirvis (2011) A Framework For The Human Resources Role In Managing Culture In Mergers And Acquisitions/ Human Resource management

Conceptual paper

Highlighted the value of a clear “cultural end state” in M&A and apply classic change management theory to identify actions that unfreeze current cultural mind-sets, move people toward the desired end state, and refreeze the desired culture.

2. Teerinkangas et al (2011)

Integration Managers’ Value-Capturing Roles And Acquisition Performance/ Human Resource Management

Case Study The extent to which the integration managers performed his role with regard to capturing acquired firm value affected the degree of value creation versus leakage from a acquisition

3 Zollo and Meir (2008)

What Is M&A Performance/ Academy of Management Perspectives

Conceptual Paper

M&A performance is a multifaceted construct

3 Schoenberg (2006)

Measuring the Performance of Corporate Acquisitions: An Empirical Comparison of Alternative Metrics/ British Journal of Management

Empirical Study

Investigated the comparability of four measures of acquisition performance.

4 Cartwright (2006)

30 Years Of Mergers And Acquisitions Research: Recent Advances And Future Opportunities/ British Journal of Management

Conceptual review Paper

Three primary streams of enquiry can be identified within the strategic and behavioral literature which focus on the issues of strategic fit, organizational fit and the acquisition process itself.

5 Homburg and Bucerius (2005)

A Marketing Perspective on Mergers and Acquisitions: How Marketing Integration Affects Post merger Performance/ Journal of Marketing

Empirical Study

The effects of post-merger integration in marketing (extent and speed of marketing integration) on M&A performance, as mediated by integration outcomes (magnitude of cost savings and market-related performance.

6 Capron (1999) The Long-Term Performance of Horizontal Acquisitions/ Strategic Management Journal

Empirical Study

Incorporated the insights from the cost efficiency and resource-based theories to propose a model of the effects of asset divestiture and resource redeployment on long-term acquisition performance.

8 Cartwright and Cooper (1993)

The role of culture compatibility in successful organizational marriage/ Academy of Management Review

Conceptual Paper

Examines the role of culture compatibility in determining venture outcomes. It focuses on the complex interaction between the existing type of premarital culture of the partners and the terms and interpretation of the type of marriage contract the parties believed they had entered.

9 Datta (1991) Organizational Fit and Acquisition Performance: Effects of Post-Acquisition Integration/ Strategic Management Journal

Empirical Study

Indicated that differences in top management styles have a negative impact on performance in acquisitions characterized by both high and low levels of post-acquisition integration.

10 Schmidt and Fowler (1990)

Post-Acquisition Financial Performance And Executive Compensation/ Strategic Management Journal

Empirical Study

Firm size, form of acquisition, executive motivation, and financial performance are analyzed for two groups of acquiring firms.The financial performance measures include accounting and capital market data

49

Table 2.5 Desired Change Outcomes: Evidences from the Literature

2.6 MERGERS AND ACQUISITIONS IN INDIA

Mergers and Acquisitions (M&A’s) have been a prominent trendin the advanced

capitalist countries since the late nineteenth century (Ramakrishnan, 2010; Beena,

2004).But only in recent times it has become a regular phenomenon in ‘developing’

countries like India.The Indian evidence suggests that the new economic environment

of the nineties has facilitated M&As (Beena, 2004).Economic liberalization started in

India after 1990 and the M&A activity in Indian sector has increased significantly

after the market reforms (Ramakrishnan, 2008).Mergers of firms belonging to the

same business groups operating in similar product-lines appeared to dominate the

Merger-wave in India (Beana, 2004).Mergers and acquisitions (M&A’s) have become

major means of industry consolidation (Kumar, 2009). M&A has now become a

viable strategy for growth in India.

According to Grant Thornton (2012), India witnessed a surge in M&A deals

since 2010 and this trend is continued in 2012, however, there is a fall in inbound

deals as compared to 2011. All the sectors including technology, media, telecom,

consumer products, pharmaceutical and healthcare space are active. In 2014,there

were 569 M&A transactions worth USD 37.05 billion. Domestic transactions in 2015,

with over 300 deals, saw the highest number of transactions since 2007 (Grant

Thornton, 2016). A brief snapshot of M&A transactions in India according to Grant

Thornton (2016) is presented in Table. Recent trends in M&A witnessed a high

growth in service sector as evident from Table 2.6(b). However, while looking at the

S. No Desired Change Outcomes References 1. Desired change outcomes (General) Holt et al, 2007; 2. Financial Outcomes Return on

Investment Krishnakumar and Sethi, 2012; King et al, 2004; Rani et al, 2012; Datta, 1991; Zollo and Singh, 2004; Ouakauaket al 2014

Earnings per share

Cording et al, 2010; Marks, 1997; Rani et al, 2012; Datta, 1991; Ouakauaket al,2014

Stock Price Datta, 1991; Zollo and Singh, 2004; Ouakauaket al 2014; Mittal and Jain, 2012

Cash Flow Mantravadi and Reddy, 2007; Krishnakumar and sethi, 2012; Datta, 1991

Sales Growth Datta, 1991; Ouakauaket al, 2014 3. Non-Financial

Outcomes Human Integration

Antila, 2006; Marks and Mirvis, 2009; Gomes et al, 2013; Correiaet al, 2013


Antila, 2006; Marks and Mirvis, 2009;


Homburg and Bucerius, 2005; Capron, 1999; Hittet al, 2009

Task Integration Marks and Mirvis, 2009

50

deal summary (Table 2.6a) it highlighted a fall in total M&A in 2016 as compared to

2015. Table 2.6(a): Deal Summary for M&A in India

Deal Summary Volume Value (US$ million) Year 2014 2015 2016 2014 2015 2016 Domestic 50 65 64 853 1484 2458 Crossborder 67 64 58 2479 5297 5904 Mergers and internal restructuring

9 2 7 1107 11 563

Total M & A 126 131 129 4439 6792 8925 Private equity 131 221 280 2004 2599 2959 Grand total 257 352 409 6443 9391 11884 Crossborder includes Inbound 43 29 24 1987 4728 3498 Outbound 24 35 34 492 569 2406 (Source: Grant Thornton, 2016)

Table 2.6(b): Recent Trends in M&A across Industries in India Key sectors Value (US$ mn)

Ecommerce 22 292 IT & ITES 21 654

Banking & Financial Services 13 418 Manufacturing 12 855

Pharma, Healthcare & Biotech 10 804

Energy & Natural Resources 7 1,536 Telecom 4 1,745

(Source: Grant Thornton, 2016)

Mergers and acquisitions, in present scenario, have emerged as vital corporate

strategies for rapid growth and development (Ramakrishnan 2010; Mittal and Jain,

2012). From this backdrop the question arises how the merging firms performed in the

long run in Indian context.The researchers in the area of finance have been studying

the performance aspect of mergers and acquisitions (Mittal and Jain, 2012; Rani et al,

2012). Kohli and Mann (2011) and Das and Kapil, (2012) studied the

internationalization theory in emerging markets and established acquiring company’s

wealth gains in domestic and cross border acquisitions in Indian context. Kumar

(2009) examined the post-merger operating performance of acquiring companies

involved in merger activities during the period 1999-2002 in India.Studies in India

related to mergers are few and with some studies particularly focusing on comparing

51

pre-merger and post-merger performance usually the financial aspects (Kumar and

Parchure, 1990).

Studies on post-merger performance of Indian companies are few. Some

researchers attempted to identify synergies and explored the post-merger performance

of companies (Kumar, 2009; Mittal and Jain, 2012, Rani et al, 2012). Srivastava and

Prakash (2014) determined value creation among pharmaceutical industry after cross-

border mergers by using both market and accounting-based measures. Rani et al,

2012, examined the returns to shareholders of acquiring companies in India during the

period 2003-2008 and indicated that M&A generates statistically significant abnormal

returns on the announcement as well as higher post M&A returns for shareholders of

the acquiring firms. In the Indian context, Beena (2004) ' has investigated the impact

on the stock prices of the acquiring companies, whereas Kohli and Mann (2011) have

highlighted the impact on both acquirers as well as target firms. Ramakrishnan (2008)

proposed two performance measures, accounting measures based on objective data

such as cash flow returns and other financial ratios, and share price returns related to

the capital market

In order to create a better understanding of how researchers used different

variables to explain M&A performance, Das and Kapil (2012) classify these

performance variables as financial performance variables (i.e. variables related to

profits, return on assets, return on investments, etc.), market performance variables

(sales, market share, stock market performance) and other non-financial operational

performance elements, including subjective measures. Abbott and Banerji (2003)

found that the strategic areas (non-financial outcomes) like market, production and

competitive flexibility are significantly related to financial outcomes like return on

sales, return on assets and earnings before interest and tax.

This is a general perception that M&A leads to strong emotional reaction, but

there is indeed a huge repository of knowledge on financial outcomes but very few

researchers focused on the on the human aspect of M&A in Indian context. The

impact of the M&A processes on the employees is similar irrespective of the

geography and location of these mergers activity (Bhal et al, 2009). In India, the

effect and defects of the merger process have been experienced (Islam, et al, 2012).

Examples of mergers that collapsed due to the lack of HR synergies in the two

organizations can be Proctor and Gamble and Godrej, Grasim and L & T, Air India

and Indian Airlines merger. Islam et al (2012) examined the effects of mergers and

52

acquisitions on the morale and psychology of the employees in the State Bank of

Indore and developed a model to show the factors employees resist in this process.He

identified four broad factors resulting in negative emotion which includes degree of

awareness for future growth and prospects after merger, degree of uncertainty of

employees after merger, degree of future growth of an industry and degree of personal

problems of an employee.

Most of the M&A decisions are taken, after examining the financial, legal and

market related issues, neglecting employees’ concerns, often leading to a great degree

of employee uneasiness and stress (Bhasker et al, 2012). She indicated that most

M&A fail to achieve the desired results primarily due to employee’s uncertainty and

anxiety. In this research the role of communication with the leader (either immediate

or top management) in M&A is assessed as a mediator of LMX(high- and low-quality

leader-member dyads) and employee reactions relationship. The role of

communication and information sharing is higher than usual during times of radical

change like M&A’s in order to reduce employee uncertainty. When the employees’

interests and concerns are not taken into consideration right from the planning stage

of the merger, the merger might not yield the desired outcomes (Bhaskeret al, 2012).

Therefore, the HR strategies like compensation, career planning, employee

development and talent retention should be adopted (Bhalet al, 2009; Bhaskeret al,

2012). These strategic HR practices might yield the desired merger outcomes in terms

of the expected synergies.

M&A literature in Indian context when reviewed taking in consideration the

post integration phase, it was found that most of the studies focused on the financial

aspect/ performance (Rani et al, 2012; Mittal and Jain, 2012; Beena, 2004; Srivastava

and Prakash, 2014; Kohli and Mann, 2011) and only few were found to be

highlighting on employee aspect of M&A (Islam et al, 2012, Bhasker, et al, 2012;

Bhalet al, 2009). The mergers that show better performance indicators (post-merger)

are expected to show more positive affective, cognitive, and behavioral concern to

employee emotional needs (Bhalet al, 2009).Mittal and Jain (2012) made an attempt

to study the financial and non-financial outcomes of M&A. The researcher

emphasized on the achievement of non-financial outcomes in order to improve

financial performance of the acquiring firm. There is only one study (Bhalet al, 2009),

which has emphasized on the role of leaders as mediators between employee and

desired outcomes. Financial measures might have limitations to capture the full

53

impact of merger on corporate performance and to identify the motives behind the

M&A decisions. This provides a unique research opportunity to study M&A in the

Indian context with specific reference to soft aspects like middle managers role and

employee issues and their impact on the success of M&A. Key research papers related

to M&A in Indian context are summarized in Table 2.7.

Table 2.7: Key Research Shaping M&A in India S.No

Title Author Theme Key Theme

1 Das and Kapil (2012)

Explaining M&A performance: a review of empirical research/ Journal of Strategy and Management

Conceptual review paper

The M&A performance measures are diverse owing to heterogeneous views on what constitutes M&A performance and organization performance. They are categorized under Accounting Measures, Market Measures and Other Measures, including subjective assessments.

2 Rani et al, 2012

Impact Of Mergers And Acquisitions On Returns To Shareholders Of Acquiring Firms : Indian Economy In Perspective/ Joumal Of Financial Management And Analysis

Event Study Indicate that M&A generate statistically significant abnormal returns on the announcement as well as higher post M&A returns for shareholders of the acquiring firms.

3 Bhasker et al, 2012

Strategic HR Integration and Proactive Communication during M&A: A Study of Indian Bank Mergers/ Global Business Review

Case Study Strategic employee communication, appropriate changes in the performance management system and a compensation structure with cutting edge strategic HR practices paved the way for successful integration and merger success.

4 Islam et al, 2012

The Behavioral Aspect Of Mergers And Acquisitions: A Case Study From India/ Global Journal Of Business Research

Empirical Study

Developed a model to show the factors employees resist in this process and examines the effects of mergers and acquisitions on the morale and psychology of the employees.

5 Kohli and Mann (2012)

Analyzing determinants of value creation in domestic and cross border acquisitions in India/ International business review

Event Study Methodology

Wealth gains Value creation drivers (international diversification theory, internalization theory and exchange rate theory).

6 Mittal and Jain, (2012)

Mergers and Acquisitions Performance System: Integrated Framework for Strategy Formulation and Execution Using Flexible Strategy Game-Card/ Global Journal of Flexible Systems Management

Case Study Attempt to integrate all possible financial and non-financial performance parameters systematically as a mergers and acquisition performance system.

54

7 Bhal et al, 2009

Employee reactions to M&A: role of LMX and leader communication/ Leadership & Organization Development Journal

Empirical Study

Leader communication fully mediates the relationship of the contribution dimension of LMX with cognitive reactions.

8 Kumar (2009)

Post-merger corporate performance: an Indian perspective/ Management Research News

Empirical Study

The decisions for mergers may have been inspired by the motive of empire building, market consolidation and acquiring bigger size.

9 Ramakrishnan (2008)

Long-term Post-merger Performance of Firms in India/ Vikalpa

Empirical Study

Study the long-term post-merger performance of firms by the two constituents of the measure of performance (operating cash flow scaled by the assets) and obtained some insights into the sources of economic gains.

10 Abbott and Banerji (2003)

Strategic Flexibility and Firm Performance: The Case of US Based Transnational Corporations/ Global Journal of Flexibles Systems Management

Empirical Study

The impact of three areas of strategy (market, production and competitive) on performance measures i.e. Return on assets, return on sales and earnings before interest and tax was studied.

2.7 LEARNING FROM THE LITERATURE REVIEW AND RESEARCH

GAPS

Given the extensive perusal of change management, organizational behavior and

M&A domain, the key learnings are synthesized to highlight the research gaps.

2.7.1 Learning from the Literature Review

The organizational change literature is under developed in relation to the linkages

between employee emotions, emotional balancing role of middle managers and its

impact on organizational change outcomes. It has been suggested that such outcomes

have not been studied where middle managers play a mediating role in balancing

employee emotions and there by achieving the intended outcomes. Some of the

important learnings from the literature review conducted and reported above may be

summarized as follows:

Despite enormous studies conducted on organizational change and its

management, the journey of change for many organizations is still not smooth,

as depicted in the low rate of change success. This needs a revisit to the

organizational change literature.

55

In this research radical change is studied in the context of mergers and

acquisitions; studies reveal a high failure rate of M&A, thus, effort is made to

identify the probable reasons for M&A failure and ways to manage it.

Many researchers considered human factor as one of the probable reasons for

M&A failure. People issues are difficult to handle and needs devoted leaders.

Middle managers were considered change manager or emotion manager

during radical change context.

Emotional balancing by middle manager was considered as a possible solution

for managing radical change situations and achieving intended outcomes.

Desired outcomes of post-merger integration were identified in order to study

their inter relationships.

2.7.2 Research Gaps

The key learnings from the literature as synthesized above are indicative of the

limitations of the current body of knowledge in the area and point out the need for

additional research, which may be enumerated as follows:

Literature indicates the need to leverage the role of middle managers during

radical change context. However, very few researches have been conducted on

the role of middle managers during the radical change context ofpost-merger

integration.

Although there are evidences in the literature regarding the need to focus on

human aspect of M&A, very few studies have addressed the micro level

management of human resource for smoother integration.

Emotional balancing role of the middle managers is an emerging area of

research. While past researches have indicated its importance in the radical

change contexts, no specific study has been found for the context of M&A.

Research related to M&A in India is scanty and largely focus on the financial

aspects. Although few studies have been found highlighting the significance of

managing employee emotions, there has been no empirical validation of such a

proposition, both in general and in the context of M&A in India.

Despite decades of research on M&A, what impacts the financial outcomes of

M&A remains largely unexplored and unexplained. Hence, studying the inter

relationship among different M&A outcomes is imperative.

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Further, no prior research linking the role of middle managers, employee

emotions and desired change outcomes during post-merger integration has

been found-either in general or in Indian context, which is undoubtedly a

worthy research proposition. The need for such a validated framework in

M&A domain is more pronounced, given the low rate of success.

2.8 CHAPTER SUMMARY

Against the backdrop of low rate of M&A success ( less than 30%), a revisit to the

existing body of literature, reiterates the need for consciously managing the post

integration process. A number of frameworks suggest management of change process

by leveraging middle managers role for better outcomes. Heightened employee

emotions were found to be one of the main reasons for failure of M&A. Thus, the

application of the concept of emotional balancing (Huy, 2002a), in the radical change

context of post-merger integration is research worthy.

This chapter started with the conceptual review of organizational change

literature and later delved deeper to understand the concept of radical change. Further,

the concept of employee emotions during organizational change and emotional

balancing role of middle managers is explored. Later, the research context of mergers

and acquisitions is reviewed,in general and Indian context in particular,to gain a

conceptual understanding of the domain. Finally, M&A literature is explored from the

perspective of employees and middle managers resulting in the identification of

certain broad constructs for the study which are later refined, validated and

operationalized in the next chapter. Also the key learning and research gaps

synthesized in the end, forms the basic rationale for the research design presented in

the next chapter.

Chapter : 3

Research Design

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Chapter 3

RESEARCH DESIGN

3.1 OVERVIEW OF THE DESIGN OF STUDY

An extensive review of literature in the previous chapter, acknowledged ‘emotional

balancing’ as a possible solution for managing radical change situation. The domain

of mergers and acquisitions is considered as most appropriate example of such

changes, where the organization faces intense resistance from the change recipients.

For this reason the task of emotional balancing of employees often falls on middle

level managers (change agents) who are relatively closer than the top management as

per the organizational hierarchy. Exploring the role of middle level managers is

crucial in determining the extent of desired change outcomes. This study is an attempt

to explore how ‘emotional balancing of employees by middle level managers’ during

radical change in the context of mergers and acquisitions can impact the ‘desired

performance or change outcomes’.

This chapter delineates the research design for the study undertaken by

identifying the research constructs and developing the relationship among them in the

form of a conceptual framework. Then, the complete roadmap of the research is

presented by highlighting the methodology adopted to validate the research

hypothesis and the conceptual model.

3.2 THEORETICAL OUTLOOK

Organizational change has been viewed from different perspectives by various

researchers. As discussed in the previous chapter, the prerequisite of this research is

the role played by change agents (middle managers) during organizational change

especially the radical change context. However, organizational change literature is

filled with many theories and perspectives, which can be applied in the research

context. Based on the notions of change, it can be either convergent or radical in its

scope and either evolutionary or revolutionary in its speed (Greenwood and Hinings,

1996). So while reviewing different theories about organizational change, approaches

where the change agents are responsible for the flow of change are considered.

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There has been a shift from traditional, classical, linear and rational (Van de

Ven and Poole, 1995) approaches to multi-dimensional approach to change (Graetz

and Smith, 2010; Eisenhardt, 2000) as it recognizes the centrality of paradox in the

organization. While the biological perspective reflects a slow and incremental pace of

change like evolutionary and life cycle theories (Van de Ven and Poole, 1995;Graetz

and Smith, 2010), the rational philosophy or teleological theories or planned change

or incremental change (Mintzberg1973) assume that organizations are adaptive (Van

de Ven and Poole. 1995).

The strategic theory belongs to rational theories as they rely on managers as

drivers of change who can direct and control the change process. The configuration

theory (Meyer et al, 1993) may define the research context well as it represent the

scholar’s direction with the potential for revitalizing theory and explore about

individuals, groups, and organizations. But the multi-philosophy approach (Graetz

and Smith, 2010) seems to be apt for the present situation as it studies the two

‘inconsistent states’ to exist simultaneously (Eisenhardt, 2000). There is a need that

organizations must learn to manage the paradoxical tensions between continuity and

change (Nasim and Sushil, 2010).

The essential factor for successful implementation as evident from the multi-

philosophy approach is the key role the change leader plays. To study the role played

by middle manager a new concept of ‘The theory of ‘emotional balancing’ given by

Huy (2002a) is adopted, although there are many studies focusing on the importance

of middle manager’s roles such as emotion managers, change agents etc. (Wooldridge

et al, 2008; Furnham, 2002; Westley, 1990; Hales, 2005). The typology of middle

managers given by Floyd and Wooldridge (1992) is also used in explaining the role of

middle managers and the theory of emotional balancing.

However, attempt is made to validate the assumption of ‘emotional balancing’

theory and apply the concept in the domain of a radical change situation i.e. mergers

and acquisitions and its impact on change outcomes. The multi philosophy approach

(Graetz and Smith, 2010) of change along with the theory of emotional balancing

(Huy, 2002a) is applied to study its impact in the domain of mergers and acquisition.

Further, the study is also expected to contribute to the theory of planned change

especially in the area of paradoxical/ multi philosophy approaches like managing

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paradoxes (Eisenhardt, 2000; Van de Ven and Poole. 1995; Nasim and Sushil, 2010;

Graetz and Smith, 2010)

3.3 RESEARCH VARIABLES

After a thorough analysis of the literature on organizational change and emotional

balancing, three broad sets of research constructs were identified mainly comprises of

‘employee’s emotions during change’, ‘emotional balancing by middle managers’ and

‘desired change outcomes’. Since the proposed constructs were derived from radical

change context other than M&A it was imperative to validate them by conducting a

preliminary survey from the experts in the domain of mergers and acquisitions.

The desired change outcomes refer to the expected performance parameters of

M&A. Though M&A performances are a well-researched area in strategic and

financial parameters, but the key parameter of human aspect is often missed out. In

this study, the ‘desired change outcomes’ have been categorized in three sets i.e.

‘general outcomes’ (general perception about achievement of outcomes), ‘financial

outcomes’ (improvement in earnings per share, stock price etc.) and ‘non-financial

outcomes’ (smoother human integration, cultural integration, etc.).

The three broad construct/ variables as adopted from the literature and there

association is depicted in figure 3.1. The variables ‘employee emotions during

change’ and ‘emotional balancing by middle managers’ are hypothesized as

independent variables and ‘desired change outcomes’ as dependent variable. The list

of macro constructs and the micro variables constituting it are listed in table 3.1.

Figure 3.1: Proposed Research Model


Employee’s Emotions During Change


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Table 3.1: List of Macro and Micro Variables Used in the Research

S.No Macro Variables Micro Variables References 1.

Employees Emotions During Change (EE) (4)

Reaction Towards Change Oreg, 2003; Dijk and Dick, 2009

Decreased commitment Islam et al (2012); Meyer and allen (1997)

Loss of identity Keifer ,2005; Eriksson, 2004; Islam et al (2012); Holt et al, 2007;

Feeling of uncertainty Teerikangas, 2010; Huy, 2002; Bovey and Hede (2001); Milliken, 1987

2. Emotional Balancing by Middle Level Managers (EBM) (2)

Commitment to change projects

Huy 2002a; Floyd and Wooldridge, 1992; Jaros, 2010

Attending to recipients emotions

Huy 2002a; Floyd and Wooldridge, 1992

3.

Desired Change Outcomes (DCO) (3)

Desired Change Outcome (General Perception)

Holt et al, 2007

Financial Outcomes King et al, 2004; Rani et al, 2012; Datta, 1991; Ouakauaket al, 2014

Non Financial Outcomes Antila, 2006; Gomes et al, 2013; Correiaet al, 2013; Bartels et al, 2006

3.3.1 Macro Variables

A brief explanation of macro constructs is presented below:

Employee’s Emotions during Change

Employees decide whether change is a threat or opportunity by their previous

observation that effects the formulation of attitudes and reactions to change (Lau and

Woodman, 1995). The review of literature acknowledged the kind of negative

emotions which might be experienced while undergoing change and its effect on the

change process and outcomes (Eriksson, 2004; Klarneret al, 2011; Liu and Pammela,

2005; Huy, 2012).Display of disappointment, anxious, hurt, confusion, satisfaction

and confidence are the most prominent emotions during radical change (Brundinet al,

2008). Radical change like M&A always have a negative impact on employees in

terms of commitment, job uncertainty, organizational identity and heightened anxiety,

which may not be necessarily balanced and can result in decline of organizational

benefits or outcomes; financial and non-financial (Cartwright and Holmes, 2006).

This macro independent variable is constituted by four micro variables

namely- ‘resistance to change’, ‘decreased commitment’, ‘loss of identity’ and

‘uncertainty’ which are explained in detail in the next section.

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Emotional Balancing By Middle Level Managers

Role of middle managers in influencing the radical change process and outcomes

seems well established (Huy, 2002a; Floyd and Wooldridge, 1992; Huy, 2011; Beatty

and Lee, 1992; Wooldridge et al, 2008). Though the top management is intimately

involved in making the deal, their focus shifts away once the deal is sealed, in view of

this few researchers tried to identify the potential role that middle level managers can

play in such situations (Huy, 2002a; Herzig and Jimmieson, 2006; Huy, 2002b; Reilly

et al 1993).However, they may or may not be necessarily empowered to make critical

decisions about change (Nguyen and Kliener, 2003).Emotional balancing has been

shown to be closely linked with transformational leadership, which is considered to be

essential for effective change management (Cartwright and Holmes, 2006).There are

two micro variables of this independent macro variable which are explained in the

next section.


Mergers and acquisitions have immense significance in strategic, monetary and social

terms (Gomes et al, 2013; Mittal and Jain, 2012). The popularity of mergers and

acquisitions reflects a widespread belief among managers that it provides a quicker

and apparently easier method to achieve growth and diversification objectives (Datta,

1991). But the paradox to the increasing number of M&A’s is, it gives mixed

performance to the stakeholders involved (Teerikangas, 2010; Emmanouilides and

Giovanis, 2006; Hitt et al, 2009; Marks and Mirvis, 2011; Cartwright and

Schoenberg, 2006). The reason behind poor performance of M&A can be the

difficulty to maintain the market share, to enhance shareholders value (Nguyen and

Kliener, 2003), poor human integration, the cultural challenges involved, and

managerial inefficiency to manage the integration phase (Emmanouilides

andGiovanis, 2006).

According to Zollo and Singh (2004), acquisition performance is defined as

“the variation in the acquiring firm’s overall performance which is measured as the

difference from competitors’ long-term variation in return on assets”. Most of the

studies have classified the post-merger outcomes in two types i.e. ‘financial

outcomes’ such as Return on investment (ROE) and ‘non- financial outcomes’ such as

employee and stakeholder satisfaction (Ouakauak et al, 2014; Mittal and Jain, 2012;

62

Datta, 1991). The micro constituents of this macro variable are discussed in the next

section.

3.3.2 Micro Variables

In this section the micro variables of the three macro constructs are explained in

detail.

Micro Variables Related to Employee’s Emotions during Change

Four micro variables related to ‘Employee’s Emotions during Change’ have been

considered after expert verification for M&A context in India. These are explained as

follows:

Reaction towards Change

Negative attitude towards change have negative consequences to organization, as

perceived threat from change implementation relates to increased anxiety, lower job

satisfaction and turnover intension (Vakola and Nikolaou, 2005). As evident from the

literature, ‘resistance to change’ is an important factor which should be controlled to

reduce other negative emotions (Kotter and Schlesinger, 1979; Eriksson, 2004). The

literature suggests reasons why organizational members might choose to support or

resist organizational change (Fugate et al, 2008; Brundin et al, 2008; Liu and

Perrewe, 2005). In order to capture responses for this variable, item has been taken

from the scale developed by Oreg (2003), which measures the individual differences

in resistance to change.


Organizational commitment can be defined as an employee’s perception of his

identification and involvement with the organization (Vakola and Nikolaou,

2005).Researchers found that organizational commitment plays an important role in

employee’s acceptance of change (Lau and woodman, 1995; Jimmieson et al, 2004).

Decrease in commitment can lead to negative behavioral changes in employees which

in turn had a detrimental impact on outcomes (Kiefer, 2005; Moosholder, 2000;

Fugate et al, 2008).Organizational commitment was measured using an intact

instrument called “The Affective, Normative and Continuance Commitment

Questionnaire” developed by Meyer and Allen (1997).

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Loss of identity

Cultural differences can cause employees to assume their social identities as distinct

from that of the acquiring firm (Cartwright and Schoenberg, 2006). They feel less

satisfied when they found themselves less associated with the organization’s identity

(Laery et al, 2013). Bartels et al (2006) identified an inventory of variables in

determining expected level of post-merger identification which includes pre-merger

identification, sense of continuity and perceived utility of the merger. Items for this

variable were adopted from the readiness to change scale developed by Holt et al,

2007, which will measure the personal valence i.e. the extent to which one feels that

he will or not benefit from the implementation of the prospective change.

Feeling of Uncertainty

The most common emotional state resulting from organizational change is uncertainty

(Jimmieson et al, 2004). Uncertainty is an intrinsic phase of emotions and is

associated with future oriented emotions. For this variable items have been selected

from two instruments; one from Bovey and Hede (2001) and other from Milliken

(1987).

Micro Variables Related to Emotional Balancing by Middle Managers

Two micro variables related to ‘Emotional Balancing by Middle Managers’ have been

derived from Huy (2002a) and is considered for the research after expert verification

for M&A context in India. These are explained as follows:

Commitment to Change Projects

Commitment reflects the level of attachment or acceptance shown to the introduction

of change programs (Neubert and Wu, 2009). Middle managers commitment is also

affected by the feeling of inclusion and exclusion experienced with respect to the

strategic policies during the change process (Westley, 1990). The speed and extent of

change not only depends on the skills of managers but more importantly upon their

commitment to change (Beatty and Lee, 1992).In order to measure this variable, an

attempt is made to compose items from the work of Huy (2002a). The reliability and

validity of the selected items will be tested for the research context.

64

Attending to Recipients Emotions

Middle managers are the change agents who are responsible for managing change

recipients emotions (Liu and Perrewe, 2005). Researches on emotions at workplace

has emphasized middle managers should pay close attention to subordinates

individual needs for achievement and growth which includes teaching, coaching and

new learning opportunities (Groves and Larocca, 2011; Cartwright and Holmes,

2006). To measure this variable item composed which were based on the interview

done by Huy (2002a) which will be tested for reliability and validity in Chapter 5.

Micro Variables Related to Desired Change Outcomes

Three sets of micro variables related to ‘Desired Change Outcomes’ have been

considered after expert verification for M&A context in India; namely ‘general

change outcomes’, ‘financial outcomes’, and ‘non-financial outcomes’. These are

explained as follows:

General Change Outcomes

This micro dependent variable attempts to capture the general perception about the

outcomes of the merger process. The opinion of the respondents regarding the desired

objectives of the M&A is captured, irrespective of their linkage to the specific

category (financial or non-financial) of the outcomes as discussed above. The

individual perception about achievement of change outcomes is studied by this

variable i.e. how they feel about the outcomes achieved. So for this items have been

taken from a readiness to change instrument developed by Holt et al (2007), which

measures whether the proposed change is beneficial to the organization i.e.

organizational valence (it refers to the extent to which one feels that the organization

will or will not benefit from the implementation of the prospective change).

Financial Outcomes

Most finance studies have examined performance from the perspective of benefits

adding to the acquirer and acquiring firm shareholder as a result of acquisition (Datta,

1991; Zollo and Singh, 2004; Rani et al, 2012; Larsen and Finkelstein, 1999).

Researchers who focused on financial aspect are concerned more on whether the

acquisition is wealth creating or wealth reducing (Cartwright and Schoenberg, 2006;

65

Gomes et al, 2013).Most researchers suggested that financial control is important in

the successful management of acquired firm (Datta, 1991; Zollo and Singh, 2004;

Mittal and Jain, 2012). The dependent variable of financial outcomes for the study

captures the perception regarding five financial performance parameters namely; ROI,

EPS, Stock price, Cash flow and Sales growth (Datta, 1991; Ouakauak et al 2014).

Non-Financial Outcomes

Researchers should pay more attention to non-financial outcomes as achievement of

these outcomes will enhance the financial outcomes. Larson and Finkelstein (1999)

argued that non-financial outcomes were conceptualized in terms of synergy

realization, a construct that tries to cover the complicated nature of M&A. It depends

on the combination potential, the degree of integration achieved and the lack of

employee resistance (Larson and Finkelstein, 1999). The accounting measures cannot

be used as a valid measure of post-acquisition outcomes (Marks and Mirvis, 2009).

Recently the trend or focus of scholars’ has shifted to study the cultural dynamics,

emotional and behavioral responses of employees in order to explain the

underperformance of M&A (Cartwright and Schoenberg, 2006; Antila, 2006).

When managers focus at financial outcomes, they may not necessarily bring

an experienced eye in the areas of marketing, manufacturing and cultural. As a result

hard criteria drive out soft matters (Marks and Mirvis, 2011). The constituents of this

dependent micro variable are explained in brief.

(a) Task Integration

Task integration is defined as the identification and realization of operational

synergies (Capron, 1999). The firms can reduce unit cost of production, inventory

holding, marketing, advertising and distribution by integrating similar departments

and functions (Datta, 1991). The items in the questionnaire like “Enhancement in

knowhow in manufacturing/ operation processes”, “Up gradation of R&D

capabilities” measure the extent of task integration.

(b) Marketing Integration

Marketing integration can be defined as the degree of integration as the level of

similarity achieved between two firms’ marketing systems, and processes (Homburg

66

and Bucerius, 2005). Researchers have considered two ways of enhancing revenue i.e.

increased market coverage and enhanced innovation capability (Capron, 1999). The

extent and speed of marketing integration has a much stronger impact on financial

performance (Homburg and Bucerius, 2005). Items like “expansion of geographical

coverage of the firm”, “improvement in marketing expertise” etc measures the

variable marketing integration.

(c) Human integration

Human resource challenges during the post-merger phase may prevent exploitation of

the possible synergies that can arise from transferring skills (Gomes et al, 2013;

Correia et al, 2013).The reactions of employees like turnover, poor performance and

absenteeism influences merger effectiveness (Napier, 1989). Employee resistance is

associated negatively with M&A outcomes (Larsson and Finkelstein, 1999) and

impacts financial performance (Napier, 1989). Items in the questionnaire like

“smother integration of human resource” and “greater autonomy to the acquired firm”

measure the micro variable human integration.

(d) Cultural Integration

Cultural gaps have been associated with lower success in M&A (Gomes et al, 2013;

Cartwright and Cooper, 1993; Nguyen and Kliener, 2003). The term ‘cultural clash’

refers to conflict between two companies’ style, value and mission (Nguyen and

Kliener, 2003). Poor cultural fit have a negative impact on acquisition performance

(Datta, 1991; Gomes et al, 2013) like with various accounting measures, stock market

value and financial performance (Datta, 1991; Datta and Puia, 1995; Gomes et al,

2013; Marks and Mirvis, 2011). Whereas cultural compatibility reduces stress at the

individual level, and smoothen the integration process (Cartwright and Cooper, 1993).

This variable is measured by the items like “Smoother integration of the culture of the

organization” and “Positive identification of employees in new entity”.

3.4 CONCEPTUAL FRAMEWORK FOR RESEARCH

The basic assumption of this research, as drawn from change management,

organizational behavior and merger & acquisitions literature, is that managing change

during post-merger integration can be better achieved by leveraging the role of middle

managers, who are simultaneously involved in balancing employee’s emotions. Three

67

broad sets of research construct namely- ‘Employee emotions during change’,

‘Emotional Balancing by Middle Managers’ and ‘Desired Change Outcomes’ have

been used, as explained above. The basic framework of this research is largely based

on the work of Q.N. Huy published in Administrative Science Quarterly in 2002,

which emphasized the emotional balancing role of middle managers in organizational

continuity and radical change.

This research attempts to explain the relationship between ‘employee’s

emotions’ and ‘desired change outcomes’ where ‘emotional balancing by middle

managers’ plays a mediating role. Thus, the broad conceptual framework for the

research hypothesizing possible linkage of the independent variable–‘Employees

emotions during change’, mediating variable- ‘Emotional balancing by Middle

managers’ and Dependent Variable- ‘Desired change outcomes’, is depicted in Figure

3.2.

Figure 3.2 Conceptual Research Framework

Though the above framework depicts generic relationship among the dependent and

independent variables and their micro constructs, not all of them may demonstrate

same level of linkages.

Emotional Balancing By Middle Managers: Commitment to

Change Project Attending to

Recipients Emotions

Employee’s Emotions during Change:

Reaction Towards Change Feeling of Uncertainty Decreased Commitment Loss of Identity

Desired Change Outcomes:

Financial Outcomes Non-Financial

Outcomes General Outcomes

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3.5RESEARCH PROPOSITIONS

Some of the broad assumptions about the relationships between constructs are

proposed and explained below:


outcomes i.e. smoother post-merger integration.

‘Emotional balancing by middle managers’ is considered as a potential solution for

radical change which facilitates or brings the desired outcome and leads to

organizational adaption by employees (Huy, 2002a).Past researches suggested that

middle managers can contribute to the change process by finding the right balance

between keeping the organization functioning and promoting radical change at the

same time (Huy, 2002a; Floyd and Wooldridge, 1992; Toms et al, 2011; Naz and

Nasim, 2015). Transformational leaders or middle managers can understand

emotional needs of their subordinates, which leads to greater interpersonal

understanding and relationships with them (Groves, 2006) which in turn affects

radical change outcomes. Hence, it becomes imperative to validate the impact of

‘Emotional Balancing by middle managers’ on ‘desired change outcomes’ in general

and M&A in particular.

Figure3.3 Emotional Balancing affects Radical Change Outcomes


Outcomes.

Employee’s emotions whether positive or negative have a significant influence on

desired change outcomes directly or indirectly (Huy, 2002a). In order to balance

emotions, it should be identified accurately. It is evident from the past researches that

employees often judge organizational change negatively as they perceive change as

harmful and a situation of loss (Fugate et al, 2008; George, 2000). The emotions

expressed by the employees reflect their perception about ongoing change programs


Desired Change

Outcomes

69

(Moosholder et al, 2000) and their impact on success or failure of change process

(Kiefer, 2005). Negative emotions indicates that employee’s resistance and

unwillingness to support change (Kiefer, 2005), which can be detrimental for

employers as well (Fugate et al, 2008). Consequently, it may be proposed that

‘employee emotions’ can affect the ‘desired change outcomes’ in the case of M&A as

well.

Figure3.4: Employees Emotions Affect Desired Change Outcomes

Proposition 3: Emotional balancing by middle managers acts as a mediating variable


As mentioned by Huy (2002a), emotional balancing of individuals is essential during

radical change. Many researchers insisted that there is an obvious contribution of

middle managers in the acquisition process in a positive way (Hales, 2005; Herzig and

Jimmieson, 2006; Bhal et al, 2009).Also it was evident that lack of involvement by

middle managers will create less awareness or negative impact on the

employees(Teerikangas, 2010; Vijayalakshmi and Bhattacharyya, 2011; Kiefer,

2005), which can have a detrimental impact on the change outcomes (Huy, 2002a,

Huy, 2011).Thus, with this background it may be hypothesized that ‘emotional

balancing by middle managers’ play a mediating role between ‘employee emotions’

and ‘desired change outcomes’.

Figure 3.5: Emotional Balancing By Middle Managers Acts as a Mediating Variable

Employees Emotions

During Change

Desired Change

Outcomes


Employee Emotions

during Change

Desired Change

Outcomes

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3.6 HYPOTHESES FORMULATION

Hypotheses are framed on the basis of research objectives, propositions and the

conceptual model.

3.6.1 Hypotheses of Association

The hypothesis of association compares and test the conceptual framework as

depicted in figure 3.2. The hypothesis was formed with three sets of macro

variables namely ‘employee’s emotions during change’, ‘emotional balancing by

middle managers’ and ‘desired change outcomes’. The macro research variable is

an aggregate of several constituents of micro variables as explained in sub section.

Hypotheses of Association for Macro Variables

Null Hypothesis: One macro research variable is not a predictor of the other macro

variable.

Alternate Hypothesis: One research variable is a predictor of the other macro variable.

Similarly all hypotheses for micro variables have been formulated as alternative

hypothesis.

Predictors of Desired Change Outcomes

HAEEDCO: ‘Employees emotions ‘are the predictor of ‘desired change outcomes’

HAEBMDCO: ‘Emotional balancing by middle manager’ is the predictor of ‘desired

change outcomes’

Predictor of Emotional balancing by middle managers

HAEEEBM: ‘Employees emotions’ are a predictor of ‘emotional balancing by middle

managers’.

Further drawing from the research propositions depicted in Figure3.5, following

relationship between ‘employee’s emotions during change’, ‘emotional balancing by

middle managers’ and ‘desired change outcomes’ may be hypothesized as:

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Hypothesis regarding the mediating effect of ‘emotional balancing by middle

managers’

HEEMEDCO: ‘Emotional balancing by middle managers’ mediates the relationship

between ‘employee’s emotions during change’ and ‘desired change outcomes’. The

summary of macro hypothesis of association is outlined as follows:

Table 3.2 Hypotheses Relating To Association of Macro Variables

Independent Variable Associated with Variable Hypothesis Code Employee’s emotions

during change Emotional Balancing by

middle managers, desired

change outcomes

HAEEEBM, HAEEDCO

Emotional Balancing by

Middle managers Desired change outcomes HAEBMDCO

3.6.2 Hypotheses for Micro Variables

Hypothesis for micro variables are written in a tabular form indicating that

independent variables are predictors of dependent variables. A sample hypothesis for

each set of macro variables is explained at the outset followed by a brief discussion on

the roots and logic behind the hypothesized relationship.

Micro hypotheses with ‘Employee Emotions during Change ‘as predictors of ‘Desired

change outcomes’.

There are four micro variables of ‘employee’s emotions during change’; each of them

has been hypothesized to be the predictors of all the micro variables of ‘desired

change outcomes’.

HEE1DCO1: Employee emotions ‘reaction towards change’ is a predictor of ‘desired

change outcome’ (DCO1)

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Table 3.3 Micro Hypotheses Relating to Employee Emotions as Predictors Of Desired Change Outcomes

Desired Change outcomes/ Employees emotions during

change

Desired Change Outcomes-

General (DCO1)

Desired Change financial Outcomes

(DCO2)


(DCO3) Resistance to Change (EE1) HEE1DCO1 HEE1DCO2 HEE1DCO3

Decreased Commitment (EE2) HEE2DCO1 HEE2DCO2 HEE2DCO3

Loss of Identity (EE3) HEE3DCO1 HEE3DCO2 HEE3DCO3

Uncertainty (EE4) HEE4DCO1 HEE4DCO2 HEE4DCO3

Discussion on Hypothesis Formulation

Based on the literature review a total of twelve relationships have been hypothesized.

Literature provides positive links of ‘employee emotions’ with most of the ‘desired

change outcomes’ and its micro variables (Datta, 1991, Birkinshaw et al, 2000;

Fugate et al, 2005). The review of literature identified what kind of negative emotions

are present when change occurs and how they affect the organizational change

process and its outcomes (Kiefer, 2005; Moosholder et al, 2000; Creasy et al, 2009).

Acquisition is a radical change process and hence a source of uncertainty

(Teerikangas et al, 2011). According to Huy (2002b), resistance arises from the fear

with respect to loss of control, loss of power and even loss of position. Behavioral

responses of employees during post integration phase and their related uncertainty are

sought to be a reason for poor performance (Cartwright and Schoenberg, 2006).

Micro Hypothesis with ‘Emotional Balancing by Middle managers’ as Predictors of

‘Desired Change Outcomes’

The hypothesized relationship between ‘emotional balancing by middle managers’

and ‘desired change outcomes’ is discussed and presented in table 3.4.

HEBM1DCO1: Emotional Balancing by middle managers (commitment towards

change- CTC) is a predictor of desired change outcomes (General outcomes- DCO1).

A total of six relationships have been hypothesized. Although the micro variables of

‘emotional balancing by middle managers’ is a new construct adopted from Huy

(2000), so there was not much direct links in the literature. However, Literature

highlights the possible linkage of middle manager’s role (may not related to the micro

variables directly) and the ‘desired change outcomes’ (Floyd and Wooldridge, 1992;

73

Wooldridge et al, 2008, Huy, 2002; Parris et al, 2008; Nasim and Sushil, 2011).

Although there are studies in M&A, which highlighted the significance of crucial role

played by middle managers (Emmanouilides and Giovanis, 2006; Kusstatscher, 2006;

Teerikangas et al, 2011). Achievement of outcomes become easier if a manager is

committed (Caza, 2011). For example, middle managers involvement impacts

economic performance of acquisition (Stroker, 2006; Wooldridge et al, 2008) by their

value capturing roles during the pre-acquisition phase.

Table 3.4 Hypotheses Formulation Relating Emotional Balancing by Middle Managers as Predictors of Desired Change Outcomes

Desired change outcomes/ Emotional Balancing role

of Middle Managers

Desired Change Outcomes- General

(DCO1)


(DCO2)

Desired Change Non Financial

outcomes (DCO3)

Commitment Towards Change (EBM1)

HEBM1DCO1 HEBM1DCO2 HEBM1DCO3

Attending to Recipient’s Emotions (EBM2)

HEBM2DCO1 HEBM2DCO2 HEBM2DCO3

Micro Hypotheses with ‘Employee Emotions’ as Predictors of ‘Emotional Balancing

by Middle Managers’

In this section the relationship hypothesized between employee emotions and

emotional balancing by middle managers is discussed and presented in Table 3.5 as

follows.

HEE1EBM1: Employee emotions during change (Resistance to change- RTC) are

a predictor of emotional balancing by middle managers (Commitment to change-

CTC).

Table 3.5 Hypotheses formulation relating Employee Emotions as Predictors of Emotional Balancing by Middle Managers

Employees Emotions During Change/ Emotional

Balancing Role of Middle Managers

Resistance to Change (EE1)


(EE2)

Loss of Identity (EE3)

Uncertainty (EE40

Commitment to Change (EBM1)

HEBM1EE1 HEBM1EE2 HEBM1EE3 HEBM1EE4

Attending to Recipient’s Emotions (EBM2)

HEBM2EE1 HEBM2EE2 HEBM2EE3 HEBM2EE4

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Discussion on Hypotheses Formulation

‘Emotional balancing by middle managers’ was identified as possible predictor of

‘employee emotions’. A total of eight relationships have been hypothesized. While

‘attending to recipient’s emotions’ largely seemed to be linked with employee’s

uncertainty (Brundin et al, 2008) and other micro variables of ‘employee emotions’ as

well (Leary et al, 2013; Fugate et al, 2008, Huy, 2002a; Furnham, 2002; Parris et al,

2008). The role of ‘commitment to change’ was also endorsed by few researchers as a

predictor of the four micro variables of ‘employee emotions’ (Huy, 2002a, Furnham,

2002; Teerikangas et al, 2011).

3.7 RESEARCH METHODOLOGY

The purpose of this study is to develop the conceptual research model on the basis of

literature review and preliminary expert survey, and then to validate and interpret the

model with both empirical as well as in depth analysis of select cases. Thus the

research is carried out in five phases as discussed below:

Phase 1: Literature Review and Preliminary Groundwork

An extensive literature review has been done to identify the research variables, both in

general, as well as in the context of mergers & acquisitions. Expert’s suggestions

were taken to confirm the research variables as one of the variable i.e. ‘emotional

balancing by middle managers’ is new to the research domain. This was an important

step as it will confirm the importance of this research, showing the crucial role of

middle managers during post-merger acquisition.

Phase 2: Expert Survey for validating Research Constructs

The information provided by the preliminary groundwork was used to further validate

the research constructs by conducting an expert survey. Validation of research

constructs is done for Indian context. Also, in this phase inputs from the domain

experts were taken to formulate a hierarchical relationship using ISM (Interpretive

Structural Modeling) among the micro variables of the dependent variable i.e. desired

change outcomes. This has given a greater clarity about the driving force of human

factor in achievement other outcomes of the merger; it is reported in chapter 4.

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Phase 3: Empirical Survey for Hypothesis testing

The testing of hypothesis has been carried out through questionnaire based survey, by

taking the responses from middle managers of the acquired firms. The responses were

actually a basis to test the hypotheses of association and thus validating the

conceptual research framework. A total of 215 middle managers responded to the

questionnaire based on which the empirical analysis have been undertaken to validate

the research framework.

Phase 4: Case Study- In depth analysis of research Model

To interpret the research model, case study has been undertaken for select firms

undergone M&A. For this three cases will be undertaken, depicting successful and not

so successful merger. The justification for selecting the cases has been explained later

in the chapter. For case analysis a pre designed template is used for detailed interview

of the senior middle level managers of each case.

Phase 5: Triangulation and synthesis of results

In the last phase, the results from the empirical survey and insights from the case

study have been synthesized based on which a validated and triangulated model for

change management during M&A is proposed.

3.7.1 Preliminary Groundwork for Research

A comprehensive literature was done which has provided the conceptual and

theoretical background for the research; besides this a hypothesized conceptual

research framework in a new theory is undertaken which has also proposed new

research constructs. The qualitative technique ISM has been used; the results have

been used in conceptualizing research framework, which is reported in chapter 4.

3.7.2 Research Methodology for Expert Survey

The variables identified for the research context, an idea engineering exercise was

conducted eliciting response to a structured questionnaire (Appendix 1) from M&A

experts representing academia and the industry. A judgmental sample of 30 experts in

the area of mergers and acquisitions, who had substantial experience of both pre and

post-acquisition phase, responded to the questionnaire which was personally

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administered. Thus a five point scale was used to analyze and finally select the

variables affecting the domain.

Based on the literature review, four micro variables of employee emotions

during change and two micro variables for emotional balancing as suggested by Huy

(2002), has been identified for validation from the experts. The descriptive statistics

like a higher mean, median and mode of the distribution and a high cumulative

percentage of experts approved the presence of the variables which were also

approved by the expert panel. The methodology details and results have been reported

in chapter four.

3.7.3 Research Methodology for ISM

After identifying the research constructs (employee emotions, middle manager’s role

and desired change outcomes) which were approved by domain experts, it was

imperative to study the interaction/ relationship for better clarity and understanding.

The achievement of desired change outcomes is the main aim of any mergers and

acquisitions; literature review has identified few major outcomes which need to be

focused upon. So a qualitative analysis of variables of desired change outcomes is

undertaken by using a template (Appendix 2) and a hierarchical relationship based on

their importance is developed using ‘Interpretive Structural Modeling’ (ISM).

ISM is a process that identifies a complex relationships among many elements

involved in a given situation (Warfield, 1976). It provides better understanding and

provides clarity for any relationships. This methodology is interpretive as opinion of

the group decides whether and how the different variables are related. It is primarily a

group learning process (Attri et al, 2013). It provides a directional framework and

gives way to make a realistic picture of the situation. The process involves

identification of variables, the definition of their interrelationships and the imposition

of rank order and generating a model to illuminate problems from a system

perspective (Watson, 1978).

Thus, ISM is just the link between variables represented diagrammatically,

further for understanding interpretive logic behind the link TISM could be used. For

this study, ISM is used to develop a basic model of change outcomes. TISM can be

used for further research for obtaining more clarity in the model developed by ISM.

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3.7.4 Research Methodology for the Opinion Survey

The empirical research for the study was primarily carried out by using the scientific

method for opinion survey. Scientific methods usually include a range of techniques

for investigating phenomenon by acquiring new knowledge as well as linking it with

previous knowledge base. For the scientific research, a set of hypotheses are proposed

by the researchers as explanation to the research objectives and experimental studies

are designed to test these predictors for accuracy based on observable, empirical,

measurable evidence, subject to specific principles of reasoning.

Opinion survey is described as a research methodology that offers a multi-

method approach. It is a particular type of field study that involves the collection of

data from a sample of elements drawn from a well-defined population through the use

of a questionnaire (Babbie, 1990). This method is frequently used by social science

researchers who are interested in understanding how people influence and are

influenced by their environment. It provides a condition for exploring process and

individual difference because a sample selected cautiously reflects the entire general

population (Visseret al, 1996). Survey based research is also used in management

research but has been criticized for its statistical weakness.

In this research, the opinion survey aims at developing a basic idea about the

emotional balancing role played by middle level managers during post integration

phase. Since emotional balancing is a new concept and is not yet applied in the

domain of mergers and acquisitions, the research will provide a new perspective for

people management in the given situation. The respondents are the middle level

managers of acquiring firm and the criteria for selecting them was based on their

experience of pre and post integration phase in the select M&As. The companies

covered were mainly those which have either completed or going through the post-

merger phase. The questionnaire was designed to elicit responses from the middle

managers.

Principal component factor analysis has been done to validate the items of the

research variables which were earlier verified from the expert survey for Indian

context. Chronbach Alpha has been calculated to ensure the reliability of the

questionnaire. Univariate analysis is undertaken to analyze the descriptive statistics of

all macro and micro variables.

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Finally, regression analysis is used to test the hypotheses of association and to

delineate the possible relationships. Since the proposed model suggests multiple

dependence relationship, step wise regression has been done. Interaction and

mediation has been tested for the variables depicting significant relationships. The

analysis of the data has been carried out using statistical software SPSS.

3.7.5 Research Methodology for the Case Study

In order to understand the inherent complexities and the underlying constructs of

employee emotions and its impact on the post integration phase, case based research

method has been used. Case study method is an influential, yet not much applied in

M&A research (Larsson and Frankstein, 1999). Glaser and Strauss (1967) focused on

inductive development of theory from empirical data and defended on building cases

from theories. Thus, in this part of the study with the help of select successful and not

so successful mergers cases, the importance of managing employee emotions by

middle managers and linking it with post integration outcomes is explored.

The broad objectives of the case analysis may be enumerated as follows:

To understand and interpret the validated model in real life select M&A

projects for greater insights on post integration phase and impact of employee

emotions on the intended outcomes.

To provide insights for leveraging middle managers role during post

integration phase on the basis of the identified roles and its relationship with

other macro variables.

The criteria for case selection are; first the select cases should have been

operational for at least three years and have considerable employee resistance to

study the possible roles of middle managers. Each case is either successful or not

so successful. Thus, three cases of different sector have been selected and the

background information is taken from the secondary sources. Further, a case

template is designed (Appendix 10) and responses from top middle management

are taken for the analysis. In the end a comparison of all three cases are done to

study the difference in managing post integration phase. Based on the relationship

interpretation of the validated model is undertaken and specific suggestions are put

forward.

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3.7.6 Research Methodology for Triangulation and Synthesis

Triangulation has emerged as a powerful technique in social science research for

assisting the validation of results and has been suggested for enhancing rigor

(Altrichter et al, 2008). It employs the methods of cross verification by using

different data sources, methods, researchers and data types (Miles and Huberman,

1994) in the study of the same phenomenon. The basic aim of triangulation is to

enhance the validity and reliability of qualitative research. Thus, as a method of

cross checking of data from multiple sources triangulation provides a more

detailed picture of the situation (Altrichter et al, 2008).

Methodological triangulation has been done by using both quantitative and

qualitative techniques. Also multiple methods of data collection are used like

interview and questionnaire. Findings from preliminary phase (literature review

and expert survey), regression analysis and case analysis have been triangulated to

validate the conceptual research model.

Besides the triangulation approaches envisaged for the study, appropriate

synthesis of the findings is indispensable for proper conclusiveness of the

research. This requires integrating the results of the opinion survey and case

analysis, which finally should culminate into a synthesis of the theoretical

contribution made by the study.

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3.8 RESEARCH ROADMAP

The research roadmap is a step-by-step methodology for an effective and systematic

execution of the research process. The roadmap is depicted in figure 3.6in the form of

a flowchart.

Figure 3.6 Research Roadmap in form of Flowchart of Research Methodology

The research work is carried out using sound theoretical and methodological

framework by using a mix method approach i.e. opinion survey and case analysis. The

validation of the newly proposed variables (emotional balancing by middle managers)

by domain experts indicates the significance of the context in M&A. The ISM of

dependent variable ‘desired change outcomes’ further adds clarity by presenting a

hierarchical relationship among the constituents of outcomes, thus provide a greater

understanding of the field.

Identification of Issues and the Need for the Study

Literature Review on Employee Emotions, Emotional Balancing by Middle managers and Desired Change Outcomes

Research Plan

Expert Survey for construct validation and ISM Modeling

Cases Data Collection Development of Hypotheses, Testing Pilot Questionnaire and Validation

Case Analysis and Interpretations Final Questionnaire

Fieldwork and Data Collection

Tabulation, Analysis, Data Interpretation and Conclusions

Synthesis of findings, Validated Model and Interpretation

Learning from the Study and Possibilities for further Research

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The conceptual framework has been tested empirically to develop a validated

model which was then used for case analysis. The idea of doing the case research was

to gain deeper insights in the field and which in turn has helped to find indirect

relationships among the variables.

3. 9 CHAPTER SUMMARY

Formulating the research design and delineating the research roadmap has been the

focus of this chapter. Defining research variables, proposing the conceptual research

framework, formulating hypotheses, and spelling out research methods for testing

them has largely been the theme of discussion in this chapter. The subsequent

chapters discuss the implementation of the research methodology in detail.

***************************

Chapter : 4

Verification and Modeling of Research Variables

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Chapter 4

VERIFICATION AND MODELING OF RESEARCH VARIABLES

4.1 INTRODUCTION

The literature review on mergers and acquisitions indicates that nearly 75-80% of

the mergers fail. The companies carry a detailed analysis and due diligence review

in all areas- business, markets, financial, legal etc, but still they are not able to

achieve the expected level of success. Past studies on acquisition proved that one

of the major reasons for failure of M&A is human resource (HR). Companies that

failed to realize the importance of HR integration havenot been able to achieve

their merger objectivesfor sure.Managing ‘employee’semotions’ by leveraging

‘middle manager’s role’ seems to be imperative from the literature review, in order

to achieve the intended outcomes of the merger. Though a preliminary set of

variables for ‘desired change outcomes’ have been drawn from the literature, it

needs to be verified for the Indian context for greater relevance. For this, a

preliminary survey of the experts has been undertaken, the results of which are

reported in the first section.

In the second section, micro variables of ‘desired change outcomes’,

verified in the first section, are further modeled using a qualitative technique

called Interpretive Structural Modeling (ISM) for which another round of expert’s

inputs were obtained. Thus, this chapter provides a preliminary verification of the

relevance and reliability of the newly proposed variables and their relationships,

based on select expert’s opinion, before carrying out the empirical survey and case

research for the study.

4.2 VERIFICATION OF RESEARCHVARIABLES IN INDIAN CONTEXT

Since research variables were derived from the literature based on studies of

western countries which were not in the domain of M&A, it was imperative to

conduct a preliminary verification of the research variables in the context.An

expert survey method has been adopted to verify the macro and micro variables

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identified from the literature in the field of mergers & acquisitions for Indian

context, which is explained in this section.

4.2.1 EXPERT SURVEY METHODOLOGY

Three macro research constructs namely ‘employee emotions during change’,

‘emotional balancing by middle managers’ and ‘desired change outcome’s’ were

identified from the literature which were subjected to verification form the

experts. Also, there were eight and two micro variables of ‘employee emotions’

and ‘emotional balancing by middle managers’ respectively, as identified from the

literature.Two broad constituents of dependent variable ‘desired change outcomes’

i.e. financial and non financial were identified. All these variables werethen

verified by undertakinga preliminary survey, using a structured questionnaire

(refer to Appendix 1), bythe domain experts (practitioners handling M&A in their

organization).

A sample of 30 experts (largely upper middle management) from Hindalco

(which had acquired Novelis) having the experience of mergers & acquisitions

responded to the questionnaire, which was administered personally. Based on a

five point scale, responses were analyzed to select the variables related to

‘employee emotions’ and ‘middle managers role’ affecting ‘desired change

outcomes’. The purpose of the survey was to have a preliminary verificationof the

proposed variables likepresence of ‘employee’s emotions’ during radical

change,and the possible ‘roles of middle managers’ and its linkage with the

‘desired change outcomes’.

The descriptive statistics like mean, median and mode of the distribution

and a high cumulative percentage of experts agreed serves as basis for accepting

the variables.However, to authenticate the survey results One Sample T test of

significance has been used to compare the mean value of each variable. Since the

experts responses range from strongly disagree (1) to strongly agree (5) a mean

value of more than 3 seemed to be reasonable test value for hypothesis testing.

The basic hypotheses for validating the variables were as follows:

84

Null Hypothesis (H0): There is no significant difference between the observed

mean and specified mean value for the variable (employee emotions or middle

managers role).

Alternate Hypothesis (H1): There is significant difference between the observed

mean and specified mean value for the variable (employee emotions or middle

managers role).

Thus, a variable would be accepted as valid if the significance value of the t-

statistic is less than 0.05 (95% confidence interval) indicating a higher level of

acceptance of a variable which had an impact on desired change outcomes.

4.2.2 Results and Analysis

An analysis of the expert survey indicates an extremely high presence of the

different types of ‘employee’s emotions’ derived from the literature and ‘middle

manager’s role’ was also strongly endorsed. All the variables were accepted as the

significance value was less than 0.05. Majority of the experts (66.67) believed the

strong presence of identified emotions among employees during post merger

integration and that it can be balanced by ‘middle managers role’ discussed above.

This is also evident from the standard deviation which is lower than one in case of

all variables. Cumulative percentage of experts ranging from 66.67- 96.67

reflected high conformity of the impact of ‘employees emotions’ on ‘desired

change outcomes’.All the micro variables of ‘employee’s emotions’and ‘middle

manager’s role’ were found to be statistically valid.

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Table 4.1: Verification and Analysis of Research Variables 4.1 (a) Micro Variables of Employee Emotions during Change

S.No.

Employees Emotions Identified

During Radical Change

Mean Median Mode Standard Deviation

Cumulative percentage of experts

who agreed/ strongly

agreed (%)

t – value (Test Value = 3*)

Sig. value (2-tailed)

(95% confidence interval)

Accept the

variable as valid if Sig. value

<0.05

1. Decreased Commitment

4.01 4.00 3 .740 66.67 7.483 .000 Accept

2. Loss Of Identity

4.28 4.50 4 .652 93.33 10.775 .000 Accept

3. Feeling Of Injustice

4.44 4.67 5 .528 90.00 14.994 .000 Accept

4. Feeling Of Uncertainty

4.44 4.50 5 .449 96.67 17.612 .000 Accept

5. Change Of Working Condition

4.16 4.20 4 .554 86.67 11.461 .000 Accept

6. Increased Turnover Intension

4.32 4.50 5 .725 93.33 9.948 .000 Accept

7. Voluntary Withdrawal

4.38 4.50 5 .691 86.67 10.900 .000 Accept

8. Survivor’s Syndrome

4.18 4.00 4 .616 90.00 10.441 .000 Accept

4.1 (b): Analyses of Micro Variables of Middle Managers Role 1. Commitment to

change projects 4.33 4.67 5 .632 86.67 12.419 .000 Accept

2. Attending to recipient’s emotions

4.39 4.40 4 .478 96.67 15.879 .000 Accept

Table 4.1 (c): Analyses of Micro Variables of Desired Change Outcomes 1. Non financial

outcomes 4.56 4.60 5 .391 96.67 21.857 .000 Accept

2. Financial outcomes

4.50 4.50 5 .557 93.33 14.748 .000 Accept

4.2.3 Discussion of the Expert Survey

The results of the expert survey clearly justify the basic premise of the proposed

research that employees undergo heightened emotions during the process of mergers

and acquisitions. This is evident from the fact that all the ‘employee emotions’

identified from the literature were accepted and approved by the experts. ‘Role of

middle managers’ which was identified for balancing employee emotions wasalso

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found to be statistically significance. Further, the financial and non-financial

outcomes both were considered important constituent of ‘desired change outcomes’ of

M&A by the experts.

After the preliminary verification of change outcomes (financial and non-

financial) by the experts, the micro constituents of the broad outcome variables were

identified from the literature. Further qualitative technique called ISM (Interpretive

Structural Modeling) is used to model the hierarchical relationships among the

outcomes, which is discussed in the next section.

4.3 INTERPRETIVE MODELING OF CHANGE OUTCOMES DURING

POST-MERGER INTEGRATION

The expert survey discussed in the previous section not only presents the consensus

among experts over ‘employee emotions’ and ‘middle manager’s role’ during post

integration phase but also highlighted that managing these would lead to the

achievement of both financial as well as non-financial outcomes.The outcomes were

measured using multiple criteria i.e. post-acquisition sales growth, profitability, cash

flow changes, importance given to the acquired firm’s culture, employees etc. In this

study, expert’sperception regarding importance given to the outcomes was taken.An

analysis of how achievement of one outcome will lead to the achievement of another

and how their interaction affect each other; can bring greater clarity about the

intended outcomes of M&A, the dependent variable of the research. Identifying

theinter relationships among the outcomes can be of great significance in dealing

effectively with the post integration phase.

4.3.1 Introduction to ISM (Interpretive Structural Modeling)

ISM is a well-established methodology for identifying relationships among variables.

It helps in the conceptualization and theory building, which can be tested later. The

model produced portrays a structure which can depict complexity of a relationship.

This method depends on expert’s judgments on whether and how the variables are

related. The variables are identified from the literature and any suitable group process

like brainstorming can be done to get the expert’s opinion (Sushil, 2012).

The various steps involved in ISM technique are as follows:

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Step 1: Five financial and four non-financialoutcomes identified from the literature

were considered and inputsfrom these experts were taken by using a template (refer to

appendix 2).After this, a contextual relationship is established among theoutcomes

(refer to Table 4.2).

Step 2: A structural self-interaction matrix (SSIM) is developed for outcomes (refer to

appendix 3.1).This matrix indicates the pair-wise relationship among the outcomes of

the merger. This matrix is checked for transitivity.The contextual relationships among

them as identified by the experts are presented inappendix 3.1. For example, the

experts believed return on investment will lead to stock price.

Table4.2: List of Variables used in ISM S.No Name Type

1. Return on Investment

Financial Outcomes 2. Earnings per Share 3. Stock Price 4. Cash Flow 5. Sales growth 6. Task Integration

Non Financial Outcomes 7. Marketing Integration

8. Human Integration 9. Cultural Integration

Step 3: A reachability matrix (RM) is developed from the SSIM (refer to appendix

3.2), in which the information of each entry in SSIM is transformed into 0’s and 1’s.

Step 4 and 5: The Reachability Matrix is partitioned into sevenlevels (Appendix 3.3)

and based upon the partitions, a digraph is drawn(Appendix3.4)

Step 6: Digraph is converted into an ISM model by replacing nodes of the

elementswith statements (Figure 4.1)

Step 7: Finally, the ISM model is checked for conceptual inconsistency andnecessary

modifications are incorporated.For analyzing the driving power and dependence of

change outcomes, it has been classified into four categories using MICMAC analysis

on the basis of driving power and dependence (Figure 4.2)

The MICMAC analysis is divided into four clusters, the first cluster is autonomous

change outcomes having weak driving power and weak dependence. The factors in

this quadrant are relatively disconnected from the study. None of the change outcome

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factors in the present study are in this quadrant. The second cluster consists of the

dependent variable with weak driving power but strong dependence. In our study,

financial outcomes like EPS, Stock price and Cash flow are in this cluster. In the third

cluster, the variables have linkage effect with strong driving power and also strong

dependence. In the present study, two financial outcomes like ROI, Sales growth and

one non-financial outcome i.e. marketing integration falls in this cluster. Any action

on these variables will affect other and there will be a feedback effect that makes

them unstable in the system. Finally the fourth cluster is called as independent

variable with low dependence and high driving power. In our study, non-financial

outcomes like task integration, human integration and cultural integration are in this

category. The factors falling in the third and fourth clusters are called as key

variables.

Figure 4.1: Interpretive Structural Model (ISM) - Change Outcomes affecting Post Merger

Acquisition in India

Cash Flow

Stock Price

Earnings Per Share



Human Integration

Task Integration

Sales Growth

Return on Investment

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Driving

Power

Dependence Power

Figure 4.2: MICMAC Analysis

4.3.2 Interpretation of the ISM Model

Based on expert’s feedback, the nine change outcomes were partitioned into seven

levels. The hierarchical structure of the model clearly emphasizes ‘human integration’

and ‘cultural integration’ as the basic drivers of non-financial category affecting other

change outcomes during post-merger integration.These two outcomes have great

driving power which leads to task integration, which in turn enhancessales growth.

While ‘return on investment’ and ‘marketing integration’are positioned at the fourth

level, theypave way for enhancing ‘earnings per share’, which further leads to

increase in ‘stock prices’, which in turn results in improved‘cash flow’.

Changes made to the existing system after an acquisition are likely to elicit

strong reactions and the acquired firm may witness a loss of identity which can

increase anxiety, distrust and conflict resulting in declining productivity and poor

acquisition performance. The result of the ISM not only reiterates the significance of

balancing dimensions of integration (namely ‘human integration’, ‘task integration’

etc), but also emphasizes the significance of ‘human’ and ‘cultural’ integration to start

with. As expected, ISM highlights the significance of non-financial outcomes, which

9 8,9

8 IV 7

7 6 III

6 5

5 1

4 II

3 I 2 4

2 3

1

1 2 3 4 5 6 7 8 9

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are positioned at the lower level. It emphasizes on focusing on ‘human’ and ‘cultural’

integration even before other ‘non-financial outcomes’. For example, an emphasis on

‘human integration’ may result in satisfied employees but no operational synergies,

while an emphasis on ‘task integration’ can lead to the achievement of synergies but

with a loss of employee motivation. If the task integration process is pursued before

human integration has begun, there is a high likelihood of problems in the integration

phase of M&A. Thus; every dimension of integration should be given importance but

probablyin different order of priority.The ISM, therefore, provides greater clarity

about the inter-relationship among the constituents (micro factors) of the dependent

variable of the study.

4.4 CHAPTER SUMMARY

This chapter provides a deeper insight about the verification of variables identified for

the context of the study i.e. mergers and acquisitions in India. The research variables

‘employee emotions’ and ‘emotional balancing by middle managers’ as identified

from the literature were subjected to confirmation by using expert survey

methodology. The results were statistically analyzed and reported in this section.

Finally, in the later part of the chapter Interpretive Structural Modeling- a

qualitativetechnique has been used to depict the interrelationship among the variables

of desired change outcomes (dependent variable of the study) and for identifying the

hierarchical importance given to each outcome. Such an approach of preliminary

verification of variables by experts and their subsequent modeling is new and

innovative effort adopted in this field of study. The next two chapters report the

results of the empirical survey undertaken to validate the conceptual research model

of the study.

**********************

Chapter : 5

Opinion Survey: Empirical Validation of the

Research Framework

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Chapter5

OPINION SURVEY: EMPIRICAL VALIDATION OF THE RESEARCH FRAMEWORK

5.1 OVERVIEW OF THE OPINION SURVEY

The relevance of proposed variables of ‘employee emotions’, ‘middle manager’s role’

and ‘desired change outcomes’ in the domain of mergers and acquisitions has been

well established in the previous chapter. The research under consideration attempts to

bring out the possible linkages between ‘employees emotions’ and ‘desired change

outcomes’ and the impact of mediating role played by middle manager’s using the

empirical survey research method reported in this chapter.

This research focuses on mergers and acquisitions in India and the opinion

survey is undertaken forthemiddle level managers of the acquiring companies. Thus, a

questionnaire was designed, andcomprises of questions on all research variables to

study the perception of middle managers,which has been analyzed and reported in this

chapter. Other related aspects such as sample selection, questionnaire

development,administration, validity, descriptive and related statistics have also been

discussed.

5.2 QUESTIONNAIRE DESIGN, PRE-TESTING AND FINALIZATION

This research is based on the survey approach to gain deeper insights into the domain

of mergers and acquisitions,exploring new perspectives while linking it to the

previous studies. An attempt is made to gather observable, measurable and empirical

evidence, subject to specific principles of reasoning. The scientific research design

adopted in this research is as given below in Figure 5.1.

Figure 5.1 Research Design for Opinion Survey

Formulation of Questionnaire

Systematic administration of Survey

Structured Statistical Analysis of Data

Analysis of Results

Inference/ Observations

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In this study cross sectional research design of survey method is used which

inspectthe relations between variables and differences between subgroups in a

population estimating the causal effect of one variable over the other. The instrument

used for survey is a questionnaire, which is a tool for extracting data from the

respondents. It is a collection of valid questions pertaining to the research and is a

basic for hypothesis testing. The statements of the questionnaire were formulated after

having a deeper knowledge and clarity on the key research variables, which is based

on conceptual research framework presented in chapter 3 (Figure 3.1). The

questionnaire is based on the identified research variables through literature review,

findings of expert survey and pre consultation with the experts of mergers and

acquisitions.

The questionnaire is a set of common questions laid out in a standard and

logical form to record individual responses. It consists of closed or prompted

questions with predefined answers. The respondents were asked to select the level at

which they agree or disagree to the statement, based on their perception or experience

about the domain. A five point Likert scale has been used which ranges from strongly

disagree (1) to strongly agree (5). The questions relating to one variable were

sequenced at one place. The measures used for this study is either taken from previous

researches or through expert’s opinion based on several iterations with experts in this

domain.

As the vehicle of data collection, the questionnaire is one of the critical

components in achieving high quality in survey. The phase of questionnaire

development and testing should not be neglected in order to improve the survey

quality (Nelson, 1985). Pre testing techniques like respondent debriefing,

questionnaire appraisal and cognitive interviewing are more and more used by the

practitioners (Rothgeb et al, 2001). A preliminary assessment of the questionnaire

was undertaken in order to appraise the survey questions based on certain parameters.

Questionnaire Appraisal system (QAS) has been used for this purpose (refer to

appendix 4).QAS is a systematic appraisal of survey questions to identify possible

problems in wordings or structure, which may lead to complexity in administration.

The parameters assumed by the QAS-99 guide develop by the Research Triangle

Institute are: reading, instructions, clarity, assumptions, knowledge, sensitivity/ bias,

response categories etc (Willis and Lessler, 1999).

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Five domain experts had been asked to assess the questionnaire, by

highlighting the difficulties faced in fillingit and to address separate aspect of the

question that is problematic. The identified suggestions regarding formulation of

questions, language formatting, sequencing and clarity were all sought and

incorporated which led to considerable improvement in the questionnaire. After this it

was observed the items in the questionnaire were reduced from 68 to 59, making it

more effective.

After the expert assessment and a considerable improvement in the

questionnaire, the next step was pre testing the questionnaire by the respondents who

were selected from the same population from which actual opinion survey was to be

conducted.The questionnaire developed after expert review was again tested by

collecting responses from 70 respondents. After this factor and reliability test is

conducted to finalize the questionnaire (refer to Appendix 5) and tests were reported

in section. Any item whose factor loading was less than 0.5 was removed. The final

version of the questionnaire after conducting QAS and factor analysis is provided in

Appendix. This questionnaire is the main instrument which is used for final survey

and will validate the conceptual research model. A brief description of the attributes

of the final questionnaire used in the opinion survey is summarized in Table 5.1.

Table 5.1 Summary of the Attributes of the Questionnaire used in the Opinion Survey

Questionnaire

Component of the questionnaire

Covering letter

Explanation of the terms

and instruction

Sections and items in the questionnaire

Part- A Part – B Total no

of items in part -B

Questionnaire used for opinion survey of the middle managers of the Acquiring Firms

Explaining the research context, objective of the survey and researcher’s contact details

Yes Respondents profile

Brief explanation of the study

Items related to employee emotions during change

Items related to middle manager’s role

Items related to desired change outcomes

44

5.3 SAMPLE DESIGN AND QUESTIONNAIRE ADMINISTRATION

The sample design and mode of administration of questionnaire for the opinion survey

conducted need to be discussed in detail. Middle level managers of the acquiring firm

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are the unit of analysis for the opinion survey.The term ‘middle level managers’refers

to the position which is two levels below the CEO and one level above line workers

(Huy, 2001). Middle managers include all levels of management between the

supervisory level and the top of the organization (Hales, 2005; Parris, 2008). They are

mostly involved in administering, monitoring, and motivating, leading and

influencing employees.

A total of 215 responses from middle managers were considered for this study.

Middle managers from all departments were selected for the survey. The method

adopted for sample selection has been largely judgmental and snowball sampling,

which is based on focus of the study.The survey was conducted by personally

administering the questionnaire as well as online responses by uploading the

questionnaire on Google docs. The questionnaire was uploaded on the Google docs

and link for the questionnaire was sent to the desired respondents after making

telephonic requests. Almost 70% of the responses were administered personally by

taking prior permission from the office authority. The response rate by electronic

medium was quite low as it was difficult for them to take out time from their personal

schedule after office hours to fill the questionnaire. So effort was made to get most of

the responses personally during office hours or lunch breaks. It took almost one year

in eliciting responses; the data collection was then decided to stall after achieving the

sample size of 215, despite a target of 300-400. Data collection has been a great

challenge as people were not ready to respond because of sensitive nature of mergers

and acquisition.

5.3.1 Sample Size Determination

Collection of data representing the population is a general survey goal. Within a

quantitative survey determining sample size and dealing with non response bias is

essential. The ability to use smaller sample to draw inferences for larger population is

an advantage of quantitative design. So, determining how large a sample is required to

conclude research findings i.e. determining correct sample size is essential (Bartlett et

al, 2001). This section attempts to justify the size of the sample chosen for the study.

Sample size is influenced by various factors like purpose of the study,

population size, possibility of selecting a bad sample and the permissible sampling

error.Different approaches are there to determine the sample size which includes

95

using a census for small population, using published tables, using a sample size of

similar studies and applying formulas for calculating a sample size (Lenth, 2001). As

mentioned in the earlier sections, the population of the survey consists of middle level

managers of acquiring firms in India. Some significant considerations while

determining the sample size for the survey are as follows:

Level of Precision

Level of precision or sampling error is the range expressed in percentage in which the

true value of population is estimated to be. It is the error caused by choosing a sample

for the entire population. Often +- 5% precision is considered by the researchers.

Thus, a level of +- 5 is considered in this study.

The Confidence Level

It provides an interval estimate of a population parameter. It consists of a range of

values that act as good estimates of the unknown population parameter. It determines

how reliable survey results are. These are generally constructed at confidence level set

at 90%, 95% or 98%. For this study, a confidence level of 95% has been considered

for sample determination.

Degree of Variability

It refers to the distribution of attributes in the population. The more homogeneous the

population, smaller sample size is required and vice versa. A proportion of 0.5

indicates maximum variability in a population and is often used in determining more

conservative sample (Singh and Masuku, 2014).

Besides these considerations, there are generic ways of estimating an adequate sample

size for a research study. Some of the general approaches for determining sample size

are discussed below:

Census Method

In this method whole population is used as a sample. It is more feasible for small

population as cost considerations make it difficult for larger population and hence has

not been adopted for the study.

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Published Tables

Published tables provide a sample size for a given set of criteria i.e. given

combination of precision, confidence level and variability. These are standardized

tables based on logical calculation through formulas. The research under

consideration deals with a smaller population in an organization i.e. the middle level

managers who are less than 1, 00,000. So the sample size for the precision levels

+3%, +5%,+7%, and +10% would be 1099, 398, 204 and 100 respectively, wherein

confidence level is 95% and P=0.5.Thus, the sample size of 215 for the middle level

managers selected for the study estimates population parameters with+7% precision

level with 95%confidence.

Using Formulas to Calculate the Sample Size

Cochran (1963) has proposed a standardized formula which is widely used in the

calculation of sample size. The formula is No=Z2p*q/e2, where No is the sample size,

Z2 is the abscissa of the normal curve that cuts off an area at the tails, e is the desired

level of precision, p is the estimated proportion of an attribute that is present in the

population, and q is 1-p. the value for Z is found in statistical tables which contain the

area under normal curve. According to the formula, estimating p as 0.5 which is

maximum variability, desiring a 95% confidence interval at +5% precision,

No=1.96*1.96*0.5*0.5/(0.05*0.05)=385

As per the Cochran’s formula the sample size comes to be 385. Although, for

the study under consideration 1000 questionnaires were distributed either personally

or online by Google docs, the final numbers of questionnaires received were

250.Further, out of these 250, only 215 were considered usable.

The sample size also depends on the statistical techniques that have been used in

the research.Since,multiple regression technique has been used for this study; it was

ensured that the numbers of data points (i.e. observations or cases) weremore than 5 to

10 times the number of independent variables, often called rule of thumb (Kleinbaum

et al1988).There are six independent micro variablesfor this study;therefore the

sample size of 215 is justifiedas it is more than ten times the number of independent

variables.

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Thus, the sample size considered for the analysis is justified by published

tables, Cochran’s formula and the rule of thumb. There is a difference in the desirable

and selected sample size at +5% precision levels is attributed due to the difficulty in

collecting data from companies as M&A’s are sensitive issues and also there were

time and resource limitations. These constraints often force the researcher to

compromise with the sample size due to practical versus statistical reasons (Kotrlik et

al., 2001). However, the chosen sample size for the study is within range to estimate

the population parameter with +7% precision levels with 95% confidence.

5.3.2 Rationale behind Sample Selection

The purpose of my research is to study the organizations which have undergone M&A

during the period of 2007- 2012. The idea behind this time frame is to study the

organizations where the merger has been completed and it was either in the post

integration phase or had finished this phase. The sampling units of my study are the

middle managers of the acquiring firms who were present in their respective firms

before and after the merger and may have played a possible role in balancing

employee’s emotions during this uncertain phase of post merger integration. The

organizations selected are basically the service sector organizations. According to

Standard and Poor’s Capital IQ database, a total of 5234 mergers took place between

2007- 2012 in all the sectors. Out of this a total of 1870 mergers took place in the

services sector which includes healthcare, financials, and information technology and

telecommunication services.

The rationale for the choice of service sector is the critical status of the sector.

Besidesits contribution to GDP, and its increasing share in trade and investment, it

accounts for largest share in India’s foreign direct investment. The growth of India’s

services sector has drawn global attention which can be observed from the Grant

Thornton report (2016).The share of services in India’s GDP at factorcost (at current

prices) increased from 33.3 per cent in 1950-51 to 56.5 per cent in 2012-13 as per

AdvanceEstimates (AE). The National Accounts classification ofthe services sector

includes trade, hotels, andrestaurants; transport, storage, and communication;

financing, insurance, real estate, and businessservices; and community, social like

health and education, and personalservices.

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Screening Criteria Adopted for Sample Selection

A set of screening criteria was adoptedfor selecting the merged organizations from a

list of 1870 mergers in the services sector for the period2007-12.The details of the

M&Awere drawn from Standard’s and Poor Capital IQ database. This was done after

the consultation from the experts from academia and the domain. These logics were to

arrive at a sample frame that would provide for the desired radical change context

with sizeable middle managers, in order to test the assumption of this research.

The first criteria were to select the mergers where the deal value was more

than 500 USD mn, according to the criteria 58 mergers having the required

deal value were identified.

The second criteria adopted were to exclude companies where the acquirer

was the parent company itself i.e. parent acquiring its own subsidiary. This

criterion was adopted to ensure that the right context for radical change

triggering employee emotions is considered.

The last criteria was the acquirer must have taken majority or 100 percent

stake in the acquired firms, as there were many organizations where minority

stakes were acquired.

So after applying all the screening criterion, a total of nine M&A, fulfilling all

the required criteria remained which were then shortlisted for the survey.

However, later on three more companies were dropped from the list owing to

the difficultyin data collection and hence finally the questionnaire was administered to

the respondents in six companies (listed in Table 5.2) with post merger integration

completed by 2012-13.

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Table 5.2: List of Selected Companies S.No Industry Transaction

Date Target Buyer Transaction

Value Stakes

1. Financials 23/02/2008 Centurian Bank of Punjab ltd

HDFC Bank Ltd. (BSE:500180) 2,378.51 Majority 100%

2. Financials 18/05/2010

Bank of Rajasthan Ltd.

ICICI Bank Ltd. (BSE:532174)

678.35

Majority 100%

3. Information Technology 09/26/2008 Axon Group

Limited

HCL Technologies Ltd. (BSE:532281)

770.37 Majority 100%

4. Information Technology 08/06/2007 Info crossing, Inc.

Wipro Technologies Limited


5. Healthcare 05/21/2010

Piramal Healthcare Ltd., Domestic Formulations Business

Abbott Healthcare Pvt. Ltd. 3,822.03 Majority 100%

6. Healthcare 06/19/2008

Zydus Hospitals and Medical Research Pvt. Ltd.

Cadila Healthcare Limited

(BSE:532321)


5.4 VALIDITY AND RELIABILITY OF THE QUESTIONNAIRE

Reliability and validity testing is the first step of data analysis of questionnaires.

5.4.1 Validity

Validity determines whether the research had accuratelymeasuredthe intended outputs

or how truthful the research results are (Joppe, 2000). It is the degree for measuring

any approach or instrument in describing or quantifying what it is designed to

measure. There are three different methods for testing validity- criterion validity,

construct validity and content or face validity.Face Validity is the measurement which

is acknowledged by those concerned as being logical on the "face of it" (also expert

validity). Content Validity refers to the items included, measure adequately and

represent the universe of questions that could have been asked. Criterion-Related

Validity is the procedures that agree with an external criterion, e.g., an accepted

measure.

Construct validityis the measure constant with the theoretical concept being

measured. All tests of validity ultimately designed to support/refute the instruments

construct validity as itis never fully established.Validity reflects those errors in

measurement that are systematic or constant.For this study exploratory factor analysis

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technique has been used to determine the construct validity of the items in the

questionnaire. The results of factor analysis are presented in section 5.5.1.

5.4.2 Reliability

According to Joppe (2000), reliability is defined as the extent to which results are

consistent over time and is an accurate representation of the total population under

study is referred to as reliability. There are three types of reliability which relate to:

(1) the degree to which a measurement, given repeatedly remains the same (stability),

(2) the stability of a measurement over time (equivalence) and (3) the similarity of

measurement within a given time period. Reliability is a concept used for testing or

evaluating a quantitative research (homogeneity).

Another approach to the evaluation of reliability is to examine the relative

absence of random measurement error in a instrument. Random measurement errors

can be indexed by a measure of variability of individual item scores around the mean

index score. Thus, an instrument which has a large measure of variability should be

less reliable than the one having smaller variability measure. For this study Cronbach

Alpha has been used to determine the reliability of the research instrument. The

results of reliability are presented in section 5.5.2.

5.5 VALIDITY AND RELIABILITY ANALYSIS OF DATA COLLECTED

The survey results for validity and reliability as discussed in the previous section are

presented in this section. The method of exploratory factor analysis for establishing

construct validity and Cronbach alpha for testing internal consistency are used for the

study, the results are discussed below.

5.5.1 Results of Factor Analysis

Exploratory factor analysis was performed for confirming constructs for this study.

According to Hair et al (2006), factor loading greater than 0.30 is considered to meet

the minimal level, loading of 0.40 is considered to be important and if the loading is

more than 0.50 or greater, it is considered significant.

A factor loading of 0.50 has been used as a cut off for this research. Few items

having factor loading more than .50 were also dropped as they were found to be

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repetitive and less significant. The result of factor analysis is presented in table 5.3.

Thus it confirms 44 items for the final analysis and eleven items were dropped.

Table 5.3: Results of Factor Analysis Macro variable Micro Variable Factor

Loading Items

Confirmed Items

Dropped Cum% of

loading

Employees emotions during change

Reactions Toward Change-1 .511

3 1 39.98 Reactions Toward Change-2 .822 Reactions Toward Change-3 .477 Reactions Toward Change-4 .660 Decreased Commitment-1 .698

2 1 47.18 Decreased Commitment -2 .780 Decreased Commitment -3 .566 Loss of Identity-1 .776

3 None 46.68 Loss of Identity-2 .729

Loss of Identity-3 .516 Uncertainty-1 .748

4 None 58.85 Uncertainty-2 .782 Uncertainty-3 .659 Uncertainty-4 .686


Commitment towards Change-1 .722

6 4 42.65










Attending to Recipients Emotions-1 .678

6 3 44.89





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Desired Change Outcome-1 .839

5 None 57.11 Desired Change Outcome-2 .727 Desired Change Outcome-3 .737 Desired Change Outcome-4 .677 Desired Change Outcome-5 .787 Financial Outcome-1 .770

4 1 68.35 Financial Outcome-2 .750 Financial Outcome-3 .757 Financial Outcome-4 .737 Financial Outcome-5 .404 Non Financial Outcomes- 1 .733

10 6 51.48

Non Financial Outcomes-2 .588 Non Financial Outcomes-3 .714 Non Financial Outcomes-4 .745 Non Financial Outcomes-5 .727 Non Financial Outcomes-6 .652 Non Financial Outcomes-7 .635 Non Financial Outcomes-8 .548 Non Financial Outcomes-9 .737 Non Financial Outcomes-10 .822 Non Financial Outcomes-11 .712 Non Financial Outcomes-12 .749 Non Financial Outcomes-13 .787 Non Financial Outcomes-14 .763 Non Financial Outcomes-15 .836 Non Financial Outcomes-16 .666

5.5.2 Results of Reliability Testing

Kline (1999) stated that the generally accepted value of Cronbach alpha of 0.8 is

appropriate, but a value below 0.7 can be accepted when dealing with psychological

constructs because of the diversity of constructs being measured.The study is

basically about employee behavior which is difficult to predict, so a lower value of

alpha is also accepted as new scales are being attempted. The results of the reliability

analysis are presented in table 5.4. As expected the reliability analysis of the variable

‘employee emotions’ are comparatively lower than other constructs. The alpha value

of ‘emotional balancing by middle managers’ and ‘desired change outcomes’ comes

to be more than 0.8.

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Table 5.4: Results of Reliability Test Macro variable Cronbach

Alpha Micro variable Cronbach Alpha

Employee Emotions During Change .732

Resistance to Change .484 Decreased Commitment .525 Loss of Identity .594 Uncertainty .565

Emotional Balancing by Middle Managers .630

Commitment to Change .839

Attending to Recipient’s Emotions .896

Desired Change Outcomes .857

Desired Change Outcomes (General) .858

Desired change Financial Outcomes .881

Desired Change Non Financial Outcomes .935

5.6 RESULTS OF UNIVARIATE ANALYSIS

Univariate analysis has been carried out for all the proposed macro and micro

variables for the research. The statistics computed include measures of central

tendency like mean, median and mode; measures of dispersion like standard deviation

and coefficients of variation; and the minimum and maximum range of responses. A

concise summary of the descriptive statistics of the macro and micro variables of both

the opinion surveys are discussed in this section.

5.6.1 Univariate Analysis of Macro Constructs

An analysis of the Univariate statistics of the macro constructs of the study, as

expected, indicate higher mean and median values for the research constructs. This

reiterates our basic assumption that managing employee emotions are heightened

during radical change situations and that it warrants adequate attention and hence

need to be managed. The standard deviation and variances are within permissible

limits, indicating differing opinions and emerging acceptance for emotional

balancing. As regards the outcomes parameters, has been accorded greater acceptance

which is presented in table 5.5.

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Table 5.5: Univariate Statistical Analysis for Macro Variables (N=215) Macro Variables Mean Median Mode Standard

deviation Min Max

Employee Emotions during Change 3.50 3.64 4 .635 3 4

Emotional Balancing by middle managers 3.72 3.84 4 .607 1.21 5

Desired Change Outcomes 3.86 3.96 4 .661 1.33 5

5.6.2 Univariate Analysis of Micro Variables

As evident from the statistics presented in the table 5.6, all the employee

emotionswere present and significant. As regards the emotional balancing role of

middle managers, attending to recipient’s emotions has greater significance which is a

true reflection of the reality on the ground. Both the variables of middle managers role

are aptly emphasized. In case of outcomes, non financial outcomes are given greater

importance. Though the standard deviation is less than one, a wide gap between the

maximum and minimum values of the response is indicative of extremely different

viewpoints among the respondents, as evident in resistance to change, decreased

commitment, attending to recipient’s emotions etc.

Table 5.6: Univariate Statistical Analysis for Micro Variables (N=215) Macro Variables Micro Variables Mean Median Mode Standard

deviation Min Max

Employee Emotions during Change

Resistance to change 3.41 3.33 3 .555 1 5 Decreased Commitment 3.45 3.50 4 .647 1 5 Loss of Identity 3.50 3.33 3 .579 2 5 Uncertainty 3.64 3.75 3 .533 2 4

Emotional Balancing by middle managers


3.70 3.85 4 .718 1.29 5

Attending to recipient’s emotions

3.74 4 4 .701 1 5


Desired change outcomes (General)

3.87 4 4 .817 1 5

Financial outcomes 3.77 4 4 .768 1 5 Non financial outcomes 3.9 4 4 .654 1 5

5.7 RESULTS OF EMPIRICAL SURVEY

This section presents the bivariate and multivariate analysis of research data by

conducting correlation and regression analysis. The analysis tests the hypothesis of

association and will predict the relationships among the macro and micro variables.

The result will be used for evolving a validated model for achieving the desired

outcomes in M&As.

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The hypotheses were formulated on the basis of the conceptual framework and

research propositions, discussed in chapter 3. The hypothesis is the statements formed

which depicts the relation between two or more micro variables. The macro

hypotheses explains the relationship at the aggregate level between three sets of

macro constructs ‘employee emotions during change’, ‘emotional balancing by

middle managers’, and ‘desired change outcomes’ The nature of relationships

hypothesized in terms of influence, interaction and mediation are also tested. Further,

the hypotheses of association are tested at the level of each micro variable as listed in

chapter 3.

Multicollinearity is a tool to predict a substantial degree of accuracy among

two or more variables. It can be assessed by measuring tolerance and variance

inflation factor (VIF). Tolerance indicates that variables under consideration are

almost a perfect combination of the independent variable.The VIF statistic is

responsible for inflating the sampling variance. The tolerance level should be less

than one and VIF should be less than 10 (Farrar and Glauber, 1967). The normality is

tested by assessing the normal distribution of data either by graphical or statistical

method. For large data sets normality testing becomes less important as it becomes

harder to declare that the data is normally distributed. When the data set is more than

50 kolmogorov- Smornov test is used for normality testing.

The bivariate analysis is the simultaneous analysis of two variables which

explores the relationship between them, whether there existaconnection or not. It can

help in determining to what extent the value of one variable can be predicted by other.

Multi variate analysis involves observation and analysis of more than one statistical

variable at a time. In this study the step wise data analysis is used to determine the

predictor relationships among the variables, for the middle manager’s role in

balancing employee emotions in order to achieve desired outcome.

5.8 TESTING HYPOTHESES OF ASSOCIATION

The hypothesis of association compares and tests the conceptual framework whether

emotional balancing of employees by middle level managers will lead to achievement

of desired change outcomes during post merger integration. The bivariate correlation

analysis is conducted as a precursor to the multivariate regression analysis, in order to

drop the unrelated variables. Subsequently, step wise regression analysis is conducted

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to establish the predictor criterion relationship among the macro and micro variables.

Further, the interaction and mediation effect is also tested using regression analysis, as

hypothesized.

5.8.1 Correlation Analysis

Correlation analysis of all micro variables was conducted and the results suggest that

there is a significant relation among most of the variables, except few. All nine micro

variables do not correlate significantly with the entire variable set. Three of the

variables of employees emotions during change namely decreased commitment, loss

of identity and uncertainty do not correlate significantly with some of the dependent

variables of emotional balancing by middle managers and desired change outcomes.

This suggests there may be some indirect relationship and effects which is proposed

to be tested for mediation effects.

However, independent micro variable resistance to change (employee

emotions during change) has a significantly stronger relationship with almost all the

variables, suggesting strong presence or higher resistance by employees. Among the

micro variables of emotional balancing by middle managers, attending to recipients

emotions was found to be significant with all the variables except resistance to change

by employees.

The dependent variable, desired change financial outcomes do not correlate

significantly with any independent micro variables of employee emotions. But desired

change non financial outcomes correlate significantly with two micro variables of

employee emotions (resistance to change and uncertainty). A preliminary inference

can be drawn that ‘financial outcomes’ are not directly affected by ‘employee

emotions’.

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Table 5.7 Results of Correlation Analysis AVEER

TC AVEE

DC AVEE

LI AVEEU

AVEBMCTC

AVEBMATRE

AVDCO

AVDCFO

AVDCNFO

AVEERTC 1 .336 .442 .472 -.148* -.068 -.194 -.068 -.241 .000 .000 .000 .030 .319 .004 .322 .000 AVEEDC .336 1 .375 .341 .021 .204 .081 -.108 -.037 .000 .000 .000 .757 .003 .235 .113 .585 AVEELI .442 .375 1 .494 -.050 .130 -.048 -.080 -.121 .000 .000 .000 .465 .057 .483 .245 .076 AVEEU .472 .341 .494 1 -.024 .159* .017 -.067 -.157* .000 .000 .000 .724 .020 .801 .329 .021 AVEBMCTC

-.148* .021 -.050 -.024 1 .460 .287 .270 .441

.030 .757 .465 .724 .000 .000 .000 .000 AVEBMATRE

-.068 .204 .130 .159* .460 1 .632 .463 .547

.319 .003 .057 .020 .000 .000 .000 .000 AVDCO -.194 .081 -.048 .017 .287 .632 1 .646 .670 .004 .235 .483 .801 .000 .000 .000 .000 AVDCFO -.068 -.108 -.080 -.067 .270 .463 .646 1 .713 .322 .113 .245 .329 .000 .000 .000 .000 AVDCNFO

-.241 -.037 -.121 -.157* .441 .547 .670 .713 1

.000 .585 .076 .021 .000 .000 .000 .000

5.8.2 Test for Normality and Multicollinearity

Normality test is conducted for dependent variables and in Kolmogorov- Smornov

test they were not found to be significant and normally distributed. The

multicollinearity for all sets is conducted to study the accuracy in their relationships.

The tolerance and VIF for all the sets of linear relationships are within range. It

explained greater accuracy among the variables.The results for normality and

multicollinearity are presented in appendix 6.

5.9 HYPOTHESES TESTING FOR MACRO VARIABLES

Hypothesis of association for macro variables is tested by using stepwise regression

models for the dependent macro variables. This will give an idea about the increasing

significance of the model. The macro variables ‘emotional balancing by middle

managers’ and ‘desired change outcomes’ are separately taken as dependent variables

in the regression models as depicted in figure 3.1 and listed in table 3.1 of macro

hypotheses.

5.9.1 Desired Change Outcome as Dependent Variable

‘Employee emotions during change’ and ‘emotional balancing by middle managers’

are the predictors of ‘desired change outcomes’ by step wise regression. In Table

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5.8(a), R square at .355 indicates a low value, but the field of human

behaviortypically has R-Square values lower than 50%as they are harder to predict

than physical process (Taylor and Russell, 1939; Hunter and Schmidt, 2004). The

ANOVA values for the regression are presented in Table 5.8(b) indicating validation

at 95% confidence interval.

Table 5.8(a) Regression Analysis Model summary for Desired Change Outcomes Model R R Square Adjusted R Square Std. Error of the

Estimate 1 .126 .016 .011 .658 2 .577 .333 .330 .541 3 .596 .355 .349 .534

a. Predictors: (Constant), AVEE b. Predictors: (Constant), AVEBM c. Predictors: (Constant), AVEE, AVEBM

Table 5.8(b): ANOVA for Desired Change Outcomes as Dependent Variables Model Sum of

Squares Df Mean Square F Sig.

1 Regression 1.495 1 1.495 3.459 .064 (a) Residual 60.399 212 .285 Total 93.583 214

2 Regression 31.177 1 31.177 106.412 .000 (b) Residual 62.409 213 .293 Total 93.583 214

3 Regression 33.215 2 16.608 58.323 .000 (c) Residual 60.368 212 .285 Total 93.583 214

a. Predictors: (Constant), AVEE b. Predictors: (Constant), AVEBM c. Predictors: (Constant), AVEE, AVEBM d. Dependent Variable: AVDCOF

Table 5.8(c): Coefficient Summary for Desired Change Outcomes as Dependent Variable

Model

Unstandardized Coefficients

Standardized Coefficients T Sig.

B Sttd. Error Beta B Std.

Error

1 (Constant) 4.169 .172 24.258 .000 AVEE -.126 .068 -.126 -1.860 .064

2 (Constant) 1.517 .230 6.592 .000 AVEBM .629 .061 .577 10.316 .000

3 (Constant) 1.856 .263 7.143 .000 AVEE -.146 .055 -.148 -2.675 .008 AVEBM .635 .060 .583 10.554 .000

(a) Dependent Variable: Desired Change Outcomes

The coefficient summary is shown in Table 5.8(c) gives beta values of

‘employee emotions’ and ‘emotional balancing by middle managers’ as -.148 and

.583 respectively, which represent their impact on ‘desired change outcomes’. The

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negative beta value of ‘employee emotions’ indicates that heightened employee

emotions has a significantly negative impact on ‘desired change outcomes’.

‘Emotional balancing by middle managers’ has a positive impact on the dependent

variable ‘desired change outcomes’. However, the controlled impact of ‘employee

emotions’ and ‘emotional balancing by middle managers’ on ‘desired change

outcomes’ seems to validate the conceptual model at macro level.

Discussion on Hypotheses Testing of Macro Variables

An analysis of the results of hypothesis testing of macro variables reiterates the basic

assumption of the research that the ‘emotional balancing by middle managers’ is a

strong (beta value 0.577) and significant (sig value .000) predictor of ‘desired change

outcomes’ ‘employee emotions’ does not exhibit any significant influence on either

‘emotional balancing by middle managers’ and ‘desired change outcomes’, when

regressed separately. However, when regressed along ‘emotional balancing by middle

managers’ (i.e. controlled impact of employee emotions and emotional balancing by

middle managers), both the variables were found to be significant predictors of

desired change outcomes. Also, a significant negative value of ‘employee emotions’

validates the research assumption that heightened ‘employee emotions’ may lead to

negative impact on ‘desired change outcomes’. This, further, requires analyzing the

relationships at the micro level for detailed insights, which is undertaken in the next

section.

110

Table 5.9: Hypotheses Relating To Association of Macro Variables Independent

Variable Dependent Variable R2 Sig

Value Beta

Value Hypotheses Code Status

Alternate of Hypotheses



.001 .595 .036

Employee emotion is a predictor of emotional balancing by middle managers

Rejected


.016 .064 -.126

Employee emotions are a predictor of desired change outcomes.

Rejected

Emotional balancing by Middle manager


.333 .000 .577

Emotional balancing by middle managers is a predictor of desired change outcomes.

Accepted

Employee Emotions during Change, Desired

Change Outcomes

.355 .008

-.148

Employee emotions along with emotional balancing by middle managers are a predictor of desired change outcomes.

Accepted Emotional Balancing by Middle Managers

.000 .583

As clear from thetable 5.9, the macro variable ‘employee emotions during

change’does not affect‘emotional balancing by middle managers’, hence this

hypothesis is rejected. Similarly ‘employee emotions’ are not significant predictor of

‘desired change outcomes’;therefore, this hypothesis is also rejected. While

‘emotional balancing by middle managers’ emerged to be a strong predictor of

‘desired change outcomes’ as depicted in figure 5.2. The controlled impact

of‘employee emotions’ and ‘emotional balancing by middle managers’ (i.e. when

regressed together) explain the maximum variation in desired change outcomes as

depicted in figure 5.3. The validated relationship among the three macro variables of

the research, derived from regression analysis, as represented in Figure 3.1 (Chapter

3), can be depicted diagrammatically in Figure 5.2 and 5.3.

0.577

Figure 5.2Emotional Balancing and Desired Change Outcomes

Emotional

Balancing by Middle Managers


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-0.146

0.581


This validated model relating to macro variables, obtained as a result of regression

analysis is further subjected to case analysis to triangulate the findings. The summary

of the results of regression analysis for direct relationship among the macro variables

as hypothesized in the conceptual research framework (Refer Figure 3.1) is presented

in Table 5.10. The remaining macro hypotheses relating to interactions and mediation

are discussed in the subsequent sections.

5.10 HYPOTHESES TESTING FOR MICRO VARIABLES

Three sets of hypothesis of association have been tested at the level of micro variables

drawing from the three macro variables. At the outset, all the micro variables of

‘employee emotions during change’ are regressed one by one on the micro variables

of ‘emotional balancing by middle managers’ and ‘desired change outcomes’ and

their aggregates. After this, microvariables of ‘emotional balancing by middle

managers’is regressed on each micro variable of‘desired change outcomes. The

results of the regression analysis are reported in the following sub sections.

5.10.1 Testing Micro Hypotheses with Employee Emotions as Predictors of


‘Employee emotions during change’ is an independent macro constructs comprising

of four micro variables namely ‘resistance to change’, ‘decreased commitment’, ‘loss

of identity ‘uncertainty’. ‘Desired change outcomes’isthe dependent macro variable

comprising of three micro variables namely ‘general outcomes’, ‘financial

Employee Emotions during Change Desired

Change Outcomes


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outcomes’and ‘non-financial outcomes’. Each of the four micro variables of

‘employee emotions during change’ are regressed on all of the three micro variables

of ‘desired change outcomes’ and the macro ‘desired change outcomes’. The

hypothesized relationships are presented in table 5.10.

Table 5.10: Regression Analysis Summary of Employee Emotions as predictors of Desired Change outcomes

S.No Dependent Variable Independent Variable R

Square Beta

Value Sig Status of Alternate

Hypothesis

1.

Desired change outcome (Macro)



.037

-.199 .015 Accepted Decreased Commitment .051 .502 Rejected

Loss of Identity -.033 .693 Rejected Uncertainty .022 .788 Rejected

2.

Desired change outcome (General)



.071

-.284 .000 Accepted Decreased Commitment .150 .043 Accepted

Loss of Identity .038

.644 Rejected

Uncertainty .119 .147 Rejected

3.

Desired change outcome (Financial)



.014

-.019

820 Rejected


-.086

.263 Rejected

Loss of Identity -.033

.693 Rejected

Uncertainty -.013 .881 Rejected

4.

Desired change outcome (Non-Financial)



.064

-.226

.005 Accepted


.066

.375 Rejected

Loss of Identity -.013

.870 Rejected

Uncertainty -.157 .021 Accepted

Post facto analysis of the hypothesized relationships (Table 3.3)

The post facto analysis of the hypothesized relationships reveals that out of 12

proposed hypotheses, 5 hypotheses have been found to be significant; most of which

were derived from the literature. The analysis indicates that ‘resistance to change’ is

the key predictor of macro ‘desired change outcomes’. Least resistance from

employees can help in achievement of ‘desired change outcomes’. While ‘decreased

commitment’, ‘loss of identity’ and ‘uncertainty’were not found to be significant

formacro ‘desired change outcomes’. The ‘general change outcomes’ were affected

by ‘resistance to change’ and ‘decreased commitment’. The ‘non-financial outcomes’

were also affected by ‘resistance to change’, ‘uncertainty’ and not by other two micro

113

variables of ‘employee’s emotions during change’.Further, none of the micro

variables of ‘employee’s emotions’ were found to be significant direct predictors of

‘financial outcomes’.

5.10.2 Testing Micro Hypotheses with Employee Emotions as Predictors of

Emotional Balancing by Middle managers

Emotional balancing by middle managers is a macro construct comprising of two

micro variables. The micro variables of ‘employee emotions during change’ are

regressed on micro and macro variables of ‘emotional balancing by middle

managers’. The hypothesized relationships are presented in Table 3.5 of chapter 3.

The regression analysis summary for the micro variables reporting the status of

hypotheses accepted and rejected in Table 5.11.

Table 5.11: Regression Analysis Summary of Employee Emotions as predictors of Emotional Balancing by Middle managers

S.No Dependent

Variable

Independent Variable R Square Beta Value

Sig Status of Alternate Hypothesis

1. Emotional Balancing by Middle Managers (Macro)



.065

-.256

.001 Accepted


.160 .032 Accepted

Loss of Identity .037 .654 Rejected Uncertainty .126 .126 Rejected

2. Commitment towards change



.029

-.187

.022

Accepted


.075 .323

Rejected

Loss of Identity -.019 .817

Rejected

Uncertainty .048 .564 Rejected 3. Attending to

Recipient’s Emotions



.095

-.252

.002

Accepted


.200 .007

Accepted

Loss of Identity .083 .302

Rejected

Uncertainty .168 .038 Accepted

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Post-facto analysis of the hypothesized relationships (Table 3.5)

The analysis of the hypothesized relationship reveal out of 12 proposed relationships,

only 6 were found to be significant. ‘Resistance to change’was found to be significant

for both macro as well as micro variables of ‘emotionalbalancing by middle

managers’. For ‘Attending to Recipient’s Emotions’, three micro employee emotions

variables i.e. ‘resistance to change’,‘decreased commitment’and ‘uncertainty’were

found to be significant.

5.10.3 Testing Micro Variables with Emotional Balancing as Predictors of


The two micro variables of ‘emotional balancing by middle manager’ are regressed on

macro and three micro variables of ‘desired change outcomes’. Table 5.12 provides

the regression analysis summary for the micro variables, reporting the status of

hypotheses in Table 3.4 of chapter 3.

Table5.12 Regression Analysis Summary of Emotional Balancing by Middle Managers as Predictors of Desired Change Outcomes

S.No Dependent Variables

Independent Variables R Square

Beta Value

Sig Status of Alternate Hypothesis

1. Desired change outcome (Macro)


Commitment towards change

.394 .105 .082

Rejected


.572 .000 Accepted

2. Desired change outcome (General)



.400 -.005 .935

Rejected


.635 .000 Accepted

3. Desired change outcome (Non-Financial)



.345 .072 .000

Accepted


.430 .000 Accepted

4. Desired change outcome (Financial)



.219 .241 .295

Rejected


.436 .000 Accepted

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Post-facto analysis of hypothesized relationships (Table 3.4)

The post facto analysis of the hypothesized relationship reveals that out of eight

proposed relationships, five were accepted and found to be significant. Analysis of the

results of regression shows that ‘attending to recipients emotions’ emerged to be the

major predictor of ‘desired change outcomes’ and its micro variables. ‘Commitment

to change’ was found to be significant only in case of ‘non financial outcomes’.

5.11 HYPOTHESES TESTING FOR MEDIATING ROLE OF ‘EMOTIONAL

BALANCING’

As hypothesized in Chapter 3, ‘emotional balancing by middle managers’ is expected

to mediate the relationship between ‘employee’s emotions during change’ and

‘desired change outcomes’. Since ‘employee emotions’ did not exhibit any significant

relationship with ‘emotional balancing by middle managers’ at the macro level,

mediation analysis has been undertaken at the micro level usingBaron and Kenny’s

(1986) four step approach. The methodology adopted for testing immediate effect is

discussed in the subsequent sub-sections.

5.11.1 Methodology for Hypotheses Testing for Mediation Effect

‘Mediation’ is an indirect affect which usually occurs when the causal effect of an

independent variable (X) on a dependent variable (Y) is transmitted by a variable (M).

In simple words mediation occurs when (X) affects (Y) because X affects M and M,

in turn affects Y (Preacher et al, 2007). Mediation analysis permits examination of

cases, to investigate by what means X exerts its effect on Y.

b a

c

Figure 5.4: Simple Mediation Model (Adopted from Preacher et al, 2007)

Path c in the above model is called total effect. The effect of X on Y may be mediated

by a mediating variable M, and the variable X may still effect Y. the mediator is

M

Y X

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called intervening variable. Complete mediation is a case in which variable X no

longer effect Y after M intervenes. Partial mediation is the case in which the path

from X to Y is reduced but is still different from zero when M is introduced. The

mediator is assumed to cause the outcome and not vice versa.

The mediation model can be estimated by multiple regressions. Baron and Kenny

(1986) proposed a four step approach to discuss mediation by several regression

analyses, as listed in Table 5.13.

Step 1-3 shows the zero order relationships among the variables. When one or more

variable is non- significant, mediation is not possibly or likely to be true. Assuming

there is significant relationship from step 1 to step 3, one may proceed to step 4. In

order to establish that M completely mediates X-Y relationship, the effect of X on Y

controlling for M (path c) should be zero. If first three steps are met but the step 4 is

not, then partial mediation is indicated.

Table 5.13: Statistical Method in Testing Mediation Steps in Testing Mediation Regression Equation Step 1: Conduct a simple regression analysis with X predicting Y to test for path c alone.

Y=B0+B1X+e

Step 2: Conduct a simple regression analysis with X predicting M to test for path a alone.

M=B0+B1X+e

Step 3: Conduct a simple regression analysis with M predicting Y to test the significance of path b alone.

Y=B0+B1M+e

Step 4: Conduct a multiple regression analysis with X and M predicting Y Y=B0+B1X+B2M+e

5.11.2 Hypotheses Testing for Mediation Effect of Emotional Balancing by

Middle Managers

The mediating effect of ‘Emotional Balancing by Middle Managers’ on ‘Employee

emotions during change ‘and ‘Desired change outcomes’, have been statistically

tested by adopting the methodology adopted in the previous section. The results of the

four steps of regression analysis are summarized in Table 5.15 and the details of

regression output are provided in Appendix.

According to Baron and Kenny (1986), for testing mediation, there should be a

significant relationship between independent (Employee emotions during change) and

dependent (Desired change outcomes) variables. The mediation analysis cannot be

conducted at the macro level as there is no significant relationship between ‘employee

emotions’ and ‘emotional balancing by middle managers’ but since there are

117

significant relationships at the micro level, mediation analysis is done for those micro

variables only.Two micro variables of ‘employee emotions’ - Resistance to change’

and ‘uncertainty’ have been found to have significant relationship with the micro

variables of ‘emotional balancing’; namely ‘attending to recipient’s emotions’ and

‘commitment to change’. Hence, mediation analysis has been conducted for testing

two sets of micro variables.

Table 5.14: Regression Analysis Summary for Testing Mediating Impact of Emotional Balancing by Middle Managers on Desired Change Outcomes


Steps Independent variables

Dependent variables

R Square

Sig. value

Beta Coeff.

Remarks

Desired Change Outcomes (Y)




.022 .030 -.148 * partial mediation as sig value is reduced but significant

2 Resistance to Change (X)


.035 .006 -.186

3 Commitment to change (M)


.136 .000 .368



.153 .037 .000

-.134 .349

Desired Change General Outcomes (Y)

Resistance to change as Employee emotions during change (X) 1 Resistance to

change (X)


.038

.004 -.194 *partial mediation



.022

.030 -.148



.082

.000 .078



.106

.019

.000 -.155 .264

Desired Change Non-FinancialOutcomes (Y)



Desired change Non-Financial outcomes (Y)

.058 .000 -.241 *partial mediation



.022 .030 -.148

118



.195 .000 .441



.226 .004 .000

-.180 .415

Desired Change Non-Financial Outcomes

(Y)

Uncertainty as Employee Emotions during Change (X) 1

Uncertainty(X)

Desired Change Financial Outcomes (Y)

.025

.021

-.157

*Partial mediation

2

Uncertainty(X)


.025

.020

.159

3 Attending to Recipient’s Emotions (M)


(Y)

.299 .000 .547

4 Uncertainty(X), Attending to Recipient’s Emotions (M)


(Y)

.360 .000 .000

-.250 .587

Discussion on the Mediation Effect

As summarized in the table 5.14, ‘commitment to change’(a micro variable of

‘emotional balancing by middle managers’)partially mediates between ‘resistance to

change’ and macro dependent ‘desired change outcomes’, ‘general outcomes’ and

‘non-financial outcomes’ at the micro level.Partial mediation effect of ‘attending to

recipient’s emotions’ was found in the case of ‘uncertainty’ and ‘non-financial

outcomes’. Thus, it may be concluded that both the roles of middle managersare

found to be mediating and facilitating the achievement of ‘desired change outcomes’

of M&A.

‘Commitment to change’emerged as a strong mediator between ‘resistance to

change’, both for macro desired change outcomes and its constituents (general change

outcomes and non-financial outcomes).In case of ‘resistance to change’ and micro

dependent variables ‘general’ and ‘non-financial outcomes’, again partial mediation

was there which is shown in figure 5.5 (b) and 5.5 (c).

119

Although micro constituent of ‘emotional balancing’ i.e. ‘attending to

recipient’s emotions’was found to partially mediates the relationship between

‘uncertainty’ and ‘non-financialoutcomes’ (Figure 5.5 d). Thus, both the micro

variables of ‘emotional balancing by middle managers’ play an important mediating

role in achieving the ‘desired change outcomes’.

- 0.048

-0.186

P= 0.037 R2 (X) = 0.035

R2(X,M) = 0.153 Figure 5.5(a): Model Showing Mediation Effect

-0.14

-0.194

P= 0.004, R2 (X) = 0.038

R2(X,M)= 0.106 Figure 5.5 (b): Model Showing Partial Mediation Effect

Commitment to Change (M)

Desired Change

Outcomes (Y)

Résistance to Change

(X)

0. 368


General Change

Outcomes

Resistance to Change

(X)

0.078

120

-0.148

-0.241

R2 (X)= 0.058 R2(X,M)= 0.226

Figure 5.5 (c): Model Showing Partial Mediation Effect

0.159 0.547

-0.157

R2 (X) = 0.025 R2(X,M) = 0.360

Figure 5.5 (d): Model Showing Partial Mediation Effect

5.12 CHAPTER SUMMARY

This section provides an overview of the opinion survey conducted as a part of this

study. A detailed discussion about basic research framework adopted for the survey,

details on questionnaire design, pretesting, administration of questionnaire, sample

size and rationale behind sample selection are presented. Results of normality,


Non Financial Change

Outcomes

Resistance to Change

(X)

0.441


Non financial Change

Outcomes

Uncertainty (X)

121

multicollinearity, validity and reliability are also reported. The key findings of the

results reported in the section may be summarized as follows:

Factor analysis confirmed 44 items for the questionnaire and the reliability of

the questionnaire reported Cronbach alpha of above 0.8.

A total of six mergers were selected for the data collection, shortlisted on the

basis of screening criteria, drawn from S&P database of M&A.

The relationship among the variables has been validated empirically with the

tool of regression analysis.

The mediating role of ‘emotional balancing by middle managers’ has been

investigated and the micro variable of emotional balancing ‘attending to

recipient’s emotions’and ‘commitment to change’ both were found to be most

significant mediator.

After validating the framework empirically through opinion survey results, the next

step is to interpret the validated framework in the specific context of the cases

selected for in- depth study, which is discussed in the next chapter.

************************

Chapter : 6

Analysis of Case Studies

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Chapter 6

ANALYSIS OF CASE STUDIES

6.1 INTRODUCTION

The domain of mergers and acquisitions is considered as most appropriate example of

radical change, where the organization faces intense resistance from the change

recipients. The achievement of intended outcomes during M&A becomes a difficult

task; so to balance the chaotic situation middle level managersare looked upon as

change agents who can play a crucial role in managing the post integration phase(Naz

and Nasim, 2015). Middle level managers play a mediating role in balancing

‘employee emotions’ and achievementof ‘desired change outcomes’; which is

empirically validated in the previous chapter. However, not all the micro variables of

‘employee emotions’ were found to be significant, there might be few relations which

can be further investigated from an in depth case analysis.

In this chapter, a case based analysis has been undertaken, in order to gain

deeper insights about the complexities of managing ‘employee emotions’ and its

impact on change outcomes of mergers and acquisitions. Case study method is

aninfluential, yet much underutilized technique in M&A research (Larsson and

Frankstein, 1999). M&A are unique and complex events that can result in both value-

creating and value-destroying organizational processes (Capron, 1999). As such they

deserve not only the strongly dominating nomothetic study of quantitative surveys,

but also the idiographic case studies that can provide complementary understanding of

M&A phase or in particularthe “Post Integration Phase” (Halpern, 1982; Larsson and

Frankstein, 1999).

The nomothetic surveys and possible gaps that might be there can be

complemented by using the methodological strength of case studies (Larsson,

1993).While the empirical survey based studyhighlights quantitative analysis of few

variables across large samples,the idiographic case study methodfocuses primarily on

the qualitativeaspect and in-depth study of one or a few cases (Larsson, 1993;

Bengtsson and Larsson, 2012). However, other advantages of case study method are

as follows:

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Overcome the problem togeneralize from empirical surveysand can provide a

fresh and new perspective to a previously studied phenomenon (Larsson,

1999).

It can contribute to methodological triangulation (Jick, 1979)

Selecting cases with extreme variations could also be used to test hypothesis

and strength of theories (Flyvbjerg 2006).

In the area of mergers & acquisitions, research studies are mostly dominated

by nomothetic surveys and conceptual publication (Bengtsson and Larsson, 2012).

Thus, in this chapter, with the help of select M&A cases, the basic premise of this

research; the possible ‘roles of middle managers’ in balancing ‘employee

emotions’and its impact on ‘change outcomes’during post-merger phase are explored.

The integration of quantitative and qualitative methods has been rare in the field of

M&A. The broad objectives of case analysis may be listed as follows:

To understand and interpret the validated model in real situations of post

integration phase for deeper insights on emotional balancing role of middle

managers and its likely impact on change outcomes.

To gain an in-depth understanding of the linkage between for improving the

M&A outcomes/ performance in Indian context by leveraging the role of

middle managers, in Indian context.

The case studies were not selected randomly but on the basis of three

importantcriteria. The first criteria is to select those cases which had high employee

resistance; second criteria is to select large firms with considerable middle level

managers and lastly the mergers that occurred in recent years were considered, so that

studying post-merger phase becomes easier. Accordingly, three M&A cases were

finally selected for an in-depth analysis, namely- Abbott-Piramal, Wipro-

Infocrossing and ICICI Bank- Bank of Rajasthan. Indeed, thesethree casesselected for

detailed study were large horizontal mergers which were primarily taken from the

services sector i.e. IT, healthcare and banking sectors. Further, effort was made to

categorize the select cases as successful and not so successful acquisition. These deals

mostly occurredduring 2007-12 and have completed the post-merger phase.

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6.2 METHODOLOGY FOR THE CASE STUDY

The three big deal acquisitions namely- Abbott- Piramal, Wipro- Infocrossing and

ICICIBank- Bank of Rajasthan mergers, were shortlisted for an in-depth study to

interpret the empirically validated research model. Based on secondary sources,

employee resistance was identified in the three mergers and wasclassified as

successful and not so successful deals. The basic rationale for selecting these three

mergers was that all three survived the acquisition phase and is now working

smoothly.

The case analysis starts with detailed background of the select M&A’s. Basic

information about the cases has been described by adopting SAP (Situation Actor

Process) Framework. SAPLAP is a framework which is used to produce a model of

enquiry for organizational change which can be used for managerial implications

(Sushil, 2000; 2001). In this case study only SAP framework is undertaken

wheresituation (S)represents the issues to deal with, actors (A) are the major players

involved who have the freedom of choice, and process (P) includes approach to deal

with the issues where inputs are converted into outputs.The background facts is

predominantly framed by using secondary sources such as newspaper articles,

sustainability reports and annual reports which is further validated by case survey

method.

Few studies have used quantitative questionnaires for complementing the case

study and analysis to find patterns among individuals within the M&A cases (Buono

et al, 1985; Birkinshaw et al, 2000). In this study a case template (Appendix10) is

designed for conducting expert’s interviewto elicit responses from five key actors

involved in the merger.Further based on the expert’s inputs from the case survey the

mean value for ‘employee emotions during change’, ‘emotional balancing by middle

managers’ and ‘desired change outcomes’ were calculated and shown in graphical

form, the idea was to validate the presence of these constructs in the select context.

This is followed by a brief discussion and against the backdrop of each analysis, the

validated model (as obtained from the opinion survey) is cross validated and

interpreted for each case context.

In the end, comparison of the cases is undertaken and the research model is

validated. The validated model is based on the basic premise that there is an influence

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of ‘employee emotions’ on ‘desired change outcomes’ and middle managers play a

mediating role in order to balance employee emotions and achieve better outcomes.

6.3 CASE STUDY 1: ABBOTT -PIRAMAL MERGER

Indiais one of the world’s fastest growing pharmaceutical markets. Abbott is a US

subsidiary which acquired Piramal healthcare, an Indian company in 2010. Abbott

anticipated the growth of its Indian business by acquiring Piramal to increase 20%

annually, with expected sales of 2.5 billion by 2020 (Lee and Pettypiece, May 2010).

Abbott’s revenue was observed to increase and reached 2,336 crores in 2015 (Abbott

Annual report, 2015). The pharmaceutical business in India outperformed and grew

by 26.5%. Abbott India Ltd considers acquisition of Piramal as a big success and

growth organically. It was both strategically and financially beneficial. The combined

sales force of Abbott and Piramal would be the industry’s largest in India (Lee and

Pettypiece, May 2010).

6.3.1 Background of the Case

Abbott acquired Piramal healthcare in 2010, for an up-front payment of$2.12 billion,

plus $400 million annually for the next four years (Economic Times, May 2010; Lee

and Pettypiece, May 2010). Abbott considered three factors before acquiring Piramal,

which included cultural fit, a portfolio of reputed brands and the management skill

(Shukla, 2011). It became the market leader in India with approximately seven

percent market share(Economic Times, May 2010), which was primarily because of

Piramal’s business model having experienced local leadership team, combined with

the global resources of Abbott(Abbott press Release, August 2010). Though Piramal

continued to operate as a standalone business, itcontinued reportingto Abbott’s

established products division (Lee and Pettypiece, May 2010).

The resourcestransferred included the company's manufacturing facilities at

Baddi, Himachal Pradesh and rights to around 350 brands and trademarks (Lee and

Pettypiece, May 2010). The sale also involved the transfer of 5500 Piramal’s

employees, which had lead to considerable resistance to change (Das, May 2010).

Abbott workforce increased to more than 7000 in India (Scaria et al, 2010), as it

decided to retain the talents and the products of Piramal to grow its business. (Shukla,

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2011). The details of the merger have been taken from S&P capital IQ database which

is shown in the table 6.1.

Table 6.1 Merger Details of Abbott- Piramal Brief Snapshot

Acquirer Abbott Healthcare Private Limited

Acquired Piramal Healthcare Ltd., Domestic Formulations Business

Consideration USD 3.72 billion (approxINR 175 billion)

Headquarters Acquirer India Acquired India

Primary Industry Acquirer Pharmaceuticals Acquired Pharmaceuticals

Transaction date May 21, 2010 Total Consideration to Shareholders ($ mm) 2,222.03

Implied Equity Value ($ mm) 2,222.03 Implied Enterprise Value/LTMEBITDA 8.6x Total Transaction Size ($ mm) 3,822.03 Implied Enterprise Value ($ mm) 3,822.03

Employee transferred 5500 Stake Majority Deal Attitude Friendly

(Source: S&P Capital IQ Database)

6.3.2 SAP Analysis for Abbot-Piramal Merger

The Situation-Actor-Process (SAP) analysis for Abbott-Piramal merger is explained

as follows:

Situations considered for the study

Abbott held firm grip over Piramal Healthcare business which operated as a

standalone business even after the merger (Shukla, 2011).Industry experts were

doubtful about Abbott’s ability to manage the cultural challenges. As Piramal was

known for excellent structure of the generic industry with market leading brands

which was built on low cost for the affordability and maintaining quality of the

medicines; this was assumed to be a complex issue for Abbott to handle (Das, May

2010).Also, the transfer of 5500 Piramal employees into the new organization, was

expected to cause considerable resistance to accept change (Economic Times, June

2010).

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Actors

1) Chairman of Piramal Healthcare

2) Chairman and Chief Executive Officer of Abbott

3) Senior Vice-President and the new head of Abbott’s

4) Middle LevelManagers

5) Employees

Process

The M&A integration strategy of Abbott not onlyacknowledged the resistance but

also adopted measures to reducethe same. It provided training and orientation

programs for employees moving from Piramal to Abbott, and announced a bonus

payment of up to six month’s salary (Economic Times, June 2010). Management tried

to communicate with employees regularly through mails and one to one meetings

(Abbott Citizenship Report, 2010-11). It focused on retaining the talents and products

of domestic business (Shukla, 2011). In order to retain employees trust and support,

Abbott gave rewards to those who contributed in business growth. Emotional support

was provided to employees at every level by the human resource and especially the

middle level managers, who played a promising role to reduce the uncertainty among

employees, who moved to Abbott.

Discussion on SAP Analysis of Abbot-Piramal Merger

The Piramal Business has been valued by Abbott at about 9.4 times the sales of

healthcare business for financial year 2010 (www.bseindia.com, June, 2010). Abbot

realized synergies from Piramal’s proven business model and local leadership team

(Economic Times, June 2010). Abbott also tried to keep Piramal as a separate

business which was led by its local team, increased the trust in management and

change programs by the employees (Press Trust of India, May 2010). Key learning

revealed a significant role played by middle managers by conducting training

programs to reduce resistance to change by employees moving to Abbott (Golikari,

July, 2010). Employees were paid bonus to retain their trust in management

(Economic Times, June, 2010). The post merger integration was smoother because of

the involvement of middle managers and high level of commitment showed by them.

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6.3.3 Case Analysis of Abbot-Piramal Merger

A brief background of the case is discussed in the previous section; the case context is

further verified by conducting a case analysis in order to present a deeper outlook of

the post integration phase of Abbott- Piramal deal.

Extent of Employee Emotions

Abbott doesn’t expect a sudden integration of business, by this strategy employees

felt more comfortable to work in their own company and culture (Lee and Pettypiece,

May 2010). Bonus payments to employees played a vital role in motivating and

boosting confidence and security feeling among them (NDTV, November, 2011).

That was considered as a rare gesture in Indian corporate.According to the inputs

from expert’s interview there was moderate uncertainty among the employees and

was less emotionally involved. Employee’s emotions were neither negative nor too

positive as they tried to accept and adjust to the change.

Figure 6.1: Extent of Employee Emotions in Abbot-Piramal Case

Impact Analysis of Middle Manager’s Role

Abbott placed great value on the workforce as each employee play an important role

in achieving its goals. It tried to enhance employee skills, experience and personal

growth by the human resource management which was closer to the employees and

implemented the right training and development for them at all levels. Approx 13000

employees participated in India in the training program held during 2010 (Abbott

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Employee Emotions During Change

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Citizenship Report, 2010-11). The business was led by local management teams of

Piramal which added to the employees trust in management (Economic Times, June,

2010).The survey showed a moderate presence of both the roles of middle manager

during post integration phase as they only spent the designated time to the change

process according to the expert’s inputs.

Figure 6.2: Impact Analysis of Middle Mangers role in Abbot-Piramal Case

Achievement of Desired Change Outcomes

Abbott became the leading pharmaceutical company in India, with 7% market share

and expected to grow at the rate of 20% till 2020 in India (Press Trust of India, May,

2010).It became market leader in pharmaceutical industry. The human integration was

considered to be smoother. According to the expert survey desired outcomes of the

business was almost achieved as the customers were more or less same. With new

technology, there was a significant improvement in manufacturing and operations.

R&D was found to be low as it needs more scientist and investors.

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Middle Manager's Role

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Figure 6.3: Achievement of desired Change Outcomes in Abbot-Piramal Case

Further, an attempt is made to capture the financial performance from S&P capital IQ

M&A database to show a clearer picture of financial outcomes and to support the

perception based inputs from the experts. It seems to be obvious that the perceptions

may be biased, so the growth percentage of four performance parameters namely:

revenue, earnings per share, return on equity and cash flow for Abbott India Ltd is

presented in table 6.2. The figures in bracket depicts the negative value i.e. decrease

in growth percentage.

Table 6.2: Financial Performance of Abbott India Ltd. Performance (Growth over prior year)

2009 2010 (Acquired Piramal)

2011 2012 2013 2014 2015

Revenue (%) 4.2 14.3 (39.1) (11.0) 3.2 3.0 0.3 Earnings Per Share (%)

21.8 (19.8) (76) (82.9) 939.0 (11.1) 53.6

ROE (%) 28.2 20.1 4.8 0.9 7.6 7.3 12.1 Cash Flow (INR in millions)

314978.6 (346068.7) 212229.1 267482.4 (491,312.0) 39428.34 62897.59


Abbott’s performance did not improve immediately after the merger; it took almost

two years’ time to realize the financial synergies from Piramal acquisition.

However,according to the expert’s, the performance may not necessarily represent the

gain or financial benefit from the acquisition of Piramal only; it could be due to many

other factors.

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6.4 CASE STUDY 2:-WIPRO- INFOCROSSING MERGER

The acquisition of Infocrossing by Wipro was driven by the need for growth and was

the biggest acquisitions by an Indian company (Raghu and Mishra, August, 2007).The

global infrastructure services of Infocrossing was identified as an important driver of

growth for the company which provided integrated managed infrastructure services to

premier global clients (Infocrossing Press Release, August, 2007). The acquisition

helped Wiproto expandits business in the United States by adding five data center

locations and approximately nine hundred employees (Raghu and Mishra, August,

2007; Infocrossing Press Release, August, 2007).Infocrossing has considerably

enhanced Wipro’s ADM &BPO offerings to Healthcare customers (Raghu and

Mishra, August, 2007).After this acquisition, Wipro ranked No. 3 by revenues among

Indian software services peers (Raghu and Mishra, August, 2007). However, since the

deal was almost 12 times the Ebitda of the company, it was overvalued (S&P Capital

IQ database).

6.4.1 Background of the Case

In August 2007, Wipro acquired Infocrossing for $18.70 per share in all cash deals

that createdit the world leaders in IT infrastructure management solutions (Raghu and

Mishra, August, 2007; Infocrossing Press Release, August, 2007). The acquisition

was conducted by means of a tender offer for all of the outstanding shares of

Infocrossing, and then followed by a merger with a Wipro subsidiary (S&P Capital IQ

Database, Transaction Summary).

Zach Lonstein, Chairman and Chief Executive Officer of Infocrossing

expressed his consent and approval to joina strong organization like Wipro

Technologies; as it would drive additional value for the shareholders and clients of

both the companies (Millar, August, 2007; Infocrossing Press Release, August,

2007).Besides five data centers in the U.S., and expertise in mainframes, Infocrossing

brought to Wipro its IT services and BPO (business process outsourcing) in health

care. But acquisition of Infocrossing Inc. in 2007 for $600 million hasn’t facilitated its

prevailing leadership in infrastructure management services (Raghu and Mishra,

August, 2007).The margins of Infocrossing were between 12% and 15%much lesser

than the margins of Wipro Technologies (Raghu and Mishra, August, 2007). It was

expected to improve over the next two years by better staff utilization and bigger

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contracts.The details of the merger have been taken from S&P capital IQ database

which is shown in the table 6.3.

Table 6.3 Merger Details of Wipro- Infocrossing Brief Snapshot

Acquirer Wipro Technologies Limited Acquired Infocrossing Inc. Consideration Approximately $416.1 million in cash Headquarters Acquirer India

Acquired United States Primary Industry Acquirer IT Consulting and Other Services

Acquired Data Processing and Outsourced Services

Transaction date Sep-17-2007 Total Consideration to Shareholders ($ mm)

416.15

Implied Equity Value ($ mm) 416.15 Implied Enterprise Value/LTMEBITDA

12.5x

Total Transaction Size ($ mm) 568.45 Implied Enterprise Value ($ mm) 553.40



6.4.2 SAP Analysis for Wipro-Infocrossing Merger

Situation

Wipro acquired Infocrossing to provide integrated managed infrastructure services to

leading global clients (www.wipro.com). It wasconsidered as ‘String of Pearls’

strategy where the targets deliver considerably more value when together than

individually (Hindustan Times, August, 2007). About 900 staff of Infocrossing was

absorbed by Wipro Ltd after the merger (Millar, August, 2007). According to a

websitewww.glassdoor.co.in, employees had mixed feelings about the merger. They

felt motivated to work with talented people and to learn new technology; but were

dissatisfied with the management teams as there was less transparency and

micromanagement. Since Infocrossing folded into Wipro the situation didn’t

improved. Severe cultural clash was there between Indian management and American

tech employee expectations (www.glassdoor.co.in).

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Actor

Zach Lonstein, Chairman and Chief Executive Officer of Infocrossing

Sameer Kishore, President of Wipro Infocrossing

Middle levelmanagers

Employees

Process

The organizational culture of Wipro can be defined in terms of strong work ethic,

customer focus and autonomy to employees(Wipro Annual Report, 2007-08).Wipro

always followed its core ethics andits ability to drive its culture throughout its global

operations without weakening its values in spite of rapid growth and acquisitions

(Thite, 2016). This has been made possible with huge investment in learning and

training opportunities for employees.

Discussion of SAP Analysis of Wipro-Infocrossing Merger Case

Infocrossing witnessed a lot of opportunities after merging with Wipro. The

integration process with Wipro wasnot that smooth according to Lonstein (Chairman

and Chief Executive Officer of Infocrossing), but it tried to retain most of its 920

employees post the acquisition (Millar, August, 2007).The combined business (of

Wipro and Infocrossing) was expected to reach over $1 billion in 24-36 months

(Raghu and Mishra, August, 2007). This wouldincrease the management and

operational bandwidth available that could be complemented with the general

strengths of Indian infrastructure service providers.Later in 2011, the news articles

displayed a different picture about the merger, according to (Fersht ,October, 2011),

Wipro failed to use Infocrossing as a means to get significant infrastructure offerings.

Though the acquisition was expected to increase company’s revenue but it was

considered as a disastrous acquisition (Ribeiro, August 6, 2007). Wipro’s leadership

has not helped the company to achieve the expected synergies from Infocrossing’s

infrastructure (Millar, August, 2007).

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6.4.3 Case Analysis of Wipro-Infocrossing Merger Case


Wipro did a proper due diligence process before acquiring Infocrossing. Even though,

a high level of uncertainty and loss of identity was found among the employees of the

acquired firm.There was a decrease in employee’s commitment as they could not put

their trust in Wipro’s management.As identified from the SAP framework, employees

experienced negative feelings for the merger and Wipro management. The expert

survey showed negative response of the employees, where the uncertainty and loss of

identity was moderate; despite Wipro’s effortto drive growth, satisfy customers and

energize employees.

Figure 6.4: Extent of Employee Emotions in Wipro-Infocrossing Merger Case


Wipro tried to retain acquired firm’s employees by specific initiatives and appointing

leaders who can drive the change process.Training programs and support activities for

employees were also started. As evident from the expert’s survey, company’s

initiativescompelled middle level managers to attend their recipient’s emotions but

they displayed low commitment, resulting in less emotional balancing of employees.

This has lead to organizational inertia according to Huy (2002a), as middle level

managers are low on commitment to change and moderate on attending to recipient’s

emotions.

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Figure 6.5: Extent of Role of Middle Managers in Wipro-Infocrossing Merger Case


Infocrossing was acquired to fill the strategic gap. Wipro’s revenue improved during

December 2007 by 11% Quarter over Quarter, which was primarily due to

Infocrossing acquisitions. Though the profit margins of Infocrossing were lower than

Wipro, its capacity utilization was only 50% (Ribeiro, August 6, 2007). Wipro is a big

organization which is least affected by poor performance of any of its subsidiaries.

According to a review on www.glassdoor.co.inby an employee, Infocrossing

performance was poor after integrating with Wipro. The expert survey also showed

average performance of the company and the outcomes achieved was not satisfactory.

Figure 6.6: Achievement of Change Outcomes in Wipro-Infocrossing Merger Case

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The financial performance for Wipro is taken from S&P capital IQ M&A database to

show the achievement of financial outcomes and to evaluate the perception based

inputs from the experts. It seems to be obvious that the perceptions may be biased, so

the growth percentage of four performance parameters namely: revenue, earnings per

share, return on equity and cash flow for Wipro India Ltd is presented in table 6.4.

The figures in bracket depicts the negative value i.e. decrease in growth percentage.

Table 6.4: Financial Performance of Wipro Ltd


There is decline in revenue and other parameters in 2008 i.e. after the acquisition of

Infocrossing. This may or may not be due to the acquisition as Wipro is a big

organization and there are several other factors which have lead to a poor

performance.

6.5 CASE STUDY- 3: ICICI BANK- BANK OF RAJASTHAN MERGER

The merger of ICICIbank and Jaipur based Bank of Rajasthan was not a merger of

equals. ICICIbank faced intense resistance from the employee of the acquired

firmwho even protested against this merger. Though, the heightened employee

emotions were handled cautiously by ICICI bank’s management.

6.5.1 Background of Case

The merger of ICICIbank and Jaipur based Bank of Rajasthan came into effect from

August, 2010.ICICI bankdecided to acquire Bank of Rajasthan as the acquisition

would help it in expanding the business across the country (June 2010, Economic

Times). The merger was approved after the approval of shareholders related tothe

swap ratio (www.icicibank.com).The Board had approved a share exchange ratio of

25 shares of ICICIbank for 118 shares of Bank of Rajasthan, which worked out to one

ICICIbank share for every 4.72 Bank of Rajasthan shares (Business Line, May, 2010).

Performance (Growth over prior year)

2006 2007 (Acquired Infocrossing)

2008 2009 2014 2015

Revenue (%) 30.4 40.8 32.1 29.6 16.0 8.1 Earnings Per Share (%) 26.1 41.6 9.9 19.6 26.9 11.0 ROE (%) 29.8 32.3 27.9 28.1 24.9 23.1

Cash Flow (INR in millions) 3187.0 3554.0 26858.0 9320.0 30082 44512

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Due diligence was done by the board which coveredadvances, investments, deposits,

properties & branches and employee-related liabilities (www.icicibank.com).

ICICIbank had about 50,000 employees while Bank of Rajasthan had only

4000 (1,700 officers and 2,500 clerical and sub-staff) at the time of merger (Economic

Times, September, 2010). According to bank’s managing director and CEO Chanda

Kochhar, they decided to retain and treat the acquired firm employees as part of their

organization. HR integration was completed within 30 days of getting ownership of

business (September 2010, Economic Times).The details of the merger has been taken

from S&P capital IQ database which is shown in the table 6.5.

Table 6.5: Merger Details of ICICI Bank- Bank of Rajasthan Deal Summary Details Acquirer ICICI Bank Ltd Acquired Bank of Rajasthan Ltd. Headquarters Acquirer India

Acquired India Primary Industry Acquirer Diversified Banks

Acquired Diversified Banks

Transaction date Aug-12-2010 Total Consideration to Shareholders ($ mm) 30,847.89

Implied Equity Value ($ mm) 30,847.89 Implied Enterprise Value/LTMEBITDA NA Total Transaction Size ($ mm) 30,847.89 Implied Enterprise Value ($ mm) NA



6.5.2 SAP Analysis for ICICI Bank- Bank of Rajasthan Merger

Situation

Employee got agitated after the announcement of this merger. Employee resistance

was a difficult challengefor ICICI bank (Lele, A & Anand, N, August, 2014)). The

deed of Bank of Rajasthan was dramatic as the employees strongly protested against

the merger (Business Standard, June 2005).

The main issue was Bank of Rajasthan employees' wages weredirected by the

industry wage packages unlike other private sector banks in the industry. So the

employees expected benefit on pay after the merger (Unnikrishnan, October 19,

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2010). Attrition fear was another concern for the employees. The employees had a

fear that once Bank of Rajasthan willmerge with ICICI Bank, the latter would resort

to mass transfers of employees (Business Standard, May 2010).Employeeswere

uncertain about their job security as the work culture of both banks were 'extremely'

different and they may face compatibility issues. There was no cultural fit between the

working of Bank of Rajasthan and ICICI Bank (Economic Times, July 2010). This

Mergerwould also destroy the identity of one of the oldest private sector banks in the

country.

Actor

Chanda Kochhar, MD and CEO of ICICI Bank

Mr G. Padmanabhan, Managing Director and CEO, Bank of Rajasthan

T K Srirang, Head, Human Resources, ICICI Bank

Field teams, comprising senior business and HR colleagues

Senior Management

Bank of Rajasthan employees

Process

During the post-merger phase managing various stakeholders like industry level

employee unions which had protestedagainst merging with ICICIis essential and for

this the bank’s senior management conducted virtual visits and discussionwith the

employees in the branches at regular intervals. This was essential for and an employee

base which was anxious about the impact of the merger. According to T K Srirang,

Head, Human Resources, ICICI Bank, following initiatives were taken in order to

meet employee issues as they were anxious about the impact of the merger and reduce

employee resistance(Kurian and Sharma, 2015).

Communication-

Communication was the basis of integration process. For this a personal message

from CEO and MD of ICICI Bank was recorded and shared with employees from the

acquiring firm. Field teams were formed comprising of senior business and

HRmanagers to visit all the branches and engage with employees of the merging

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entities. The purpose of all these engagements was to build understanding with them

and address their concerns, thereby helping them to adjust with the bank.

Credibility

The bank’s management made an effort to win the trust of its employees by honoring

the commitments made to them and treat them with respect and dignity. Employees

from earlier merged entity were encouraged to share their experiences with those

newly merged.All employees, including the clerical staff were re-trained by the bank

to equip them with skills and knowledge to take up higher level responsibilities.

Concern for Employees

The bank ensured to protect the interest of the employees of merging entities. It

supported the employees by offering them a period of two years to get adjusted to the

bank’s performance management processes and people management practices.

Employees were provided extensive trainingto work in a computerized environment.

The bank also created an on-line employee grievance redressal portal called I-Care

which ensures that all employee queries werehandled in an organized and time bound

manner.

Discussion on SAP Analysis of ICICI- Bank of Rajasthan Merger

The bank faced challenges of issueslike wages and compensation, cultural and

systems integration (Business Line, May 2010). The protection of pension and service

conditions are crucial concerns and employees staged a protest through the country

(Business Standard, May 2010).Since all the employees from the merging entity were

treated with respect and dignity, the Bank was able to retaintheir trust and affection.

Employees understood later that this merger will be beneficial to them as well, so they

were quite hopeful (Economic Times, June 2010). Employees were offered a two-

stage increase in wages for accepting ICICI Bank's HR terms, which included

dropping out of trade union membership and following the bank's 9 to 6 working

hours(Economic Times, September 2010).The Bank developed, a web-browser based,

video conferencing application called “i-Studio Live” for better

communicationbetween employees and management (Kurian and Sharma, 2015). This

built an enormous amount of trust between the employee and the management.

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6.5.3:Case Analysis of ICICI- Bank of Rajasthan Merger


Employee emotions had an impact on post-merger integration which could lower the

achievement of desired change outcomes. In case of ICICI Bank, employee resistance

was high but after the merger it was managed by HR policies of the bank and retained

commitment of employees of merging firm. Figure below is depicting the case survey

report.

Figure 6.7: Extent of Employee Emotions in ICICI bank- Bank of Rajasthan Merger

It was already observed from the SAP analysis that there was high level of

resistance from the Bank of Rajasthan employees, and the case survey also depicted

the presence of negative emotions as the employees even protested against this

acquisition. Despite resistance ICICI bankmanaged to maintain employee’s

commitment by their HR policies and treating Bank of Rajasthan employees as part of

their family. The employees experienced a loss of identity, as there was cultural misfit

because they were transferred from a public to a private sector bank. Uncertainties

among them were high as there was attrition fear and chances for job loss.

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ICICI Bank managed to balance employee emotions, though the integration was not

smooth but with the support of senior and middle level managers it is now one of the

successful acquisitions. Middle managers emerged to be a key player in motivating

and increasing employees support in the change program. The respondents approved

that middle managers played a challenging role during this chaotic phase and thus

helped in achieving the desired outcomes. Figure below depict the high involvement

and impact of middle manager’s role.

Figure 6.8: Extent of Middle Managers Role in ICICI bank- Bank of Rajasthan Merger

Employees of Bank of Rajasthan strongly resisted the acquisition as they had a

fear of job loss, lack of cultural fit and other uncertainties. But they accepted the

terms and conditions of ICICI Bank and the post integration phase were a bit

smoother. The field teams were formed who visited all branches and meet the

employees of merging bank. Middle level manager’s commitment was high as they

looked at the individual emotions of employees of merged bank. In addition, the Bank

made its employee grievance redressal system easily accessible to all employees

through the use of technology. They identified employee’s needs and initiated training

programs for them. The figure shows that middle managers displayed high

commitment and high attending to recipient’s emotions which lead to organizational

adaptationand thus improved change outcomes.

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The success or failure of any merger can be reflected from the achievement of desired

outcomes. Initially the outcomes were low but gradually ICICI Bank achieved almost

all the outcomes which can be observed by the figure given below.

Figure 6.9: Achievement of Desired change Outcome in ICICI bank- Bank of Rajasthan Merger

The above figure shows the achievement of desired change outcomes. It can

be observed that the desired outcome was achieved. Overall performance of the

organization increased after the acquisition. Return on investment, earning per share,

return on sales and shareholder’s value increased. There was relatively high

improvement in operations and market share. The bank also managed to retain its

customer base.Systems integration was done by bringing both businesses under the

same technology platform.Customers of Bank of Rajasthan can undertake most of the

basic banking services from all branches of ICICI Bank. There was a moderate impact

of human resource and cultural issues on merger performance.

An attempt is made to complement the perception based inputs of financial

outcomes and for this financial data ofICICI bank is taken from S&P capital IQ M&A

database. It seems to be obvious that the perceptions may be biased, so the growth

percentage of four performance parameters namely: revenue, earnings per share,

return on equity and cash flow for ICICI Bank Ltd is presented in table 6.6. The

figures in bracket depicts the negative value i.e. decrease in growth percentage.

0

0.5

1

1.5

2

2.5

3



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Table 6.6: Financial Performance of ICICI Bank Performance (Growth over prior year)

2009 2010 (Acquired Bank of Rajasthan)

2011 2012 2014 2015

Revenue (%) 6.0 (1.7) 15.5 (0.3) 5.0 26.0 Earnings Per Share (%)

0.2 30.1 27.6 24.1 14.8 10.0

ROE (%) 7.8 9.5 11.4 13.1 15.2 15.2

Cash Flow (INR in millions)

(102,672.9) 120827.4 (77.588.6) 17,710.3 (11126.3) (6210.6)


As evident from the table there is a significant improvement in revenue percentage

and return on equity. Decrease in earnings per share and negative cash flow was

observed in 2011 i.e. year after the acquisition of bank of Rajasthan. However, other

factors may also be there for a decline in performance.

6.6 KEY LEARNINGS AND COMPARISONS OF CASES

The background information about the cases (using SAP framework) and further case

analysis, has been used to synthesize the key learnings and present a comparison of

the cases analyzed.

After conducting a thorough analysis of all the select cases separately, a

comparative analysis is undertaken to highlight the difference in practices of the three

case organizations in dealing with radical change context (post integration phase).

Such a comparison is repeated to provide greater, insights and facilitates

generalization of the results.

Comparison of Cases: Employee Emotions during Change

Based on the SAP framework and literature review, it was conceptualized that

employee emotions are usually negative during post integration. This phase witness

heightened employee emotions like decreased commitment, loss of identity, resistance

and uncertainty. Further, based on inputs from experts, employee resistance was

found to be prevalent in all the three cases.While ICICIbank witnessed astrong

resistance from the employees, the employees of Abbott showed relatively positive

attitude and commitment towards the acquisition process. Commitment of employees

towards change process was low in case of Wipro,as compared to case organizations.

As evident from SAP framework, employees faced identity issues in case of Abbott

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and Wipro. There was a moderate loss of identity among employees of ICICI bank.

Uncertainty was moderate in case of all the three cases. The comparison of the case

organizations for various aspects of employee emotions is depicted in figure 6.10.

Figure 6.10: Comparison of cases for Employee Emotions during Change

Comparison of Cases: Role of Middle Manager

A marked difference in the role played by middle managers in balancing emotions

(attending to recipient’s emotions and commitment to change) has been observed in

three case studies under consideration.As drawn from SAP framework, Abbott took a

smarter step and retained the old management team which was closer to the

employees and handled the situation well. Even ICICIbank managed to balance

employee emotions by leveraging middle manager’s role at every stage. Wipro

despite being a big company with sizable middle management did not seem to have

leveragedthe roles of middle managers. Emotional balancing by middle managers was

found to be highest in case of ICICI bank followed by Abbott and Wipro was found to

have significantly low impact. In case of Abbot, both the roles of middle managers i.e.

‘commitment to change’ and ‘attending to recipient’s emotions’ were adequate, hence

there wassmoother organizational adaption. Middle managers of ICICI displayed high

commitment and greater sensitivity to employee’s emotions, thus resulting in

smoother organizational adaptation. Wipro faced a lot of resistance and organizational

inertia,as middle managersthough attended to the recipient’s emotions were much less

0

0.5

1

1.5

2

2.5

3

Resistance toChange

DecreasedCommitment



Abbott

Wipro

ICICI

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committed then other cases. Thus, a complete analysis of case strongly endorsed the

role of middle managers in emotional balancing during radical change.

Figure 6.11: Comparison of cases for Impact analysis of Middle Manager’s Role

Comparison of Cases: Desired Change Outcomes

From the perspective of the desired change outcomes, Abbott and ICICIbank

managed to achieve the intended outcomes from the acquisition. According to the

empirical survey, the performance of the ICICI bank improved after the acquisition of

Bank of Rajasthan. Abbott’s and Wipro’s performance were more or less as it was

prior to acquisition. ICICIand Abbott however, have a smoother human and cultural

integration as compared to Wipro.As depicted in figure 6.12, Wipro has received least

scores across all three parameters (general, financial and non financial outcomes).

Thus, HR integration has undoubtedly emerged as a greatest challenge in any M&A

transaction, as they play a critical role in achieving the desired change outcomes.

0

0.5

1

1.5

2

2.5

3

Commitment toChange

Attending toRecipient's Emotions

Emotional Balancing Role of Middle Managers

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Figure 6.12: Comparison of cases for Achievement of Desired Change Outcome

6.6.1: Summarizing Case Analysis

Thus, based on comparative analysis it may be concluded that Abbott- Piramal

attributed greater importance to HR issues during integration phase, thereby resulting

in least resistance from the employees of merging Piramal enterprise Limited. The

role of middle managers was substantially leveraged which led to smoother

integration and organizational adaptation. In case of ICICI bank, there was a lot of

resistance from Bank of Rajasthan employees initially, who feared that they would

not be able to adapt themselves into professional culture of ICICIbank.The HR

friendly policies of ICICI bank and committed middle level managers who cautiously

attended to employee’s emotional turmoil, lead to aninitially chaotic but later

smoother peaceful organizational adaptation. Though, Wipro made an effort to

address employee issues but could not leverage the role of middle managers which

lead to a rather chaotic organizational integration phase.In fact Wiprois still facing

resistance from Infocrossing’s employees who are dissatisfied with the management.

Thus, in the end it can be concluded that successfulpost-merger integration can be

achieved by leveraging the role of middle managers in balancing the heightened

emotions during radical change context.

0

0.5

1

1.5

2

2.5

3

3.5



Abbott

Wipro

ICICI

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Table 6.7: Summary of Case Contexts

M&A Cases Employee Emotions

EmotionalBalancing by Middle Managers

Outcomes

Status of

the merger

Commitment to Change


Abbott- Piramal

Addressed High High • Smoother Integration

• Organization Adaptation

Successful

ICICI- Bank of Rajasthan

High resistance initially but addressed later

High Low during initial phase of change process (adequate during Post merger integration after high employee resistance)

• Initially chaotic with high resistance

• Organization Adaption after some time

Successful

Wipro- Infocrossing

High Resistance (not addressed yet)

Low Low • Chaotic Organizational Adaptation

• Still struggling to achieve the outcomes

Not so Successful

6.7 CHAPTER SUMMARY

This chapter presents a description and analysis of the three select cases of mergers

and acquisitions for the study. Besides discussing the methodology adopted for this

chapter, each case is discussed in detail, separately as well as comparative analysis is

undertaken. SAP framework along with impact analysis is used for analyzing the

cases. A generic comparison, undertaken across the key research variables of the

projects, is also summarized in the end. The next chapter presents the final synthesis/

conclusion of the research drawing from both the survey (chapter 5) and the case

research (chapter 6).

*****************************

Chapter : 7

Synthesis and Conclusions

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Chapter 7

SYNTHESIS AND CONCLUSION

7.1 INTRODUCTION TO THE CHAPTER

Organizations are, and ought to be sensitive to their environments. And in today’s fast

changing environment, M&A’s have emerged to be a strategic tool for organizational

survival and growth. The impact change can have on employees have been aptly

highlighted by change researchers in the literature. Looking at organizational change

as structural adaptation, runs the risk of ignoring employees’ needs, and constitutes to

a serious gap in strategizing for change success. Management within organizations

stands often accused of looking at the needs of the organization, overlooking the

adapting capabilities of employees. It is reductionist to imply that organizations can

adapt faster than their employees.

This thesis is an effort to investigate the relationship between ‘employee

emotions’ and the ‘desired change outcomes’. In doing so, measures were developed

for three constructs, namely, ‘employee emotions during change’, ‘emotional

balancing by middle managers’ and ‘desired change outcomes’. This chapter

synthesizes the findings from across the three phases of the research: the preliminary

study verifying and structuring the research variables, the empirical opinion survey

validating the research framework, and the case analysis triangulating the results of

the survey. Further, the key conclusions of the study are highlighted by revisiting the

research objectives.Finally, recommendations based on the findings of the study are

presented, followed by limitations and directions for future research.

7.2 FINDINGS FROM THE PRELIMINARY STUDY (EXPERT SURVEY

AND ISM)

In the preliminary phase of the study, research variables were identified from the

literature and verified for the context based on expert opinion. The relationships

between theseverified research variables were proposed for further analysis. The

dependent variable i.e. ‘desired change outcomes’ were modeled using the qualitative

tool, Interpretive Structural Modeling (ISM). The key learning of this phase are as

follows:

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Almost all the variables of ‘employee emotions’ and ‘middle managers role’

identified from the literature were strongly endorsed by the experts. Though

eight variables of employees emotions were identified for preliminary survey

but since the variables were of repetitive nature, only four variables of

‘employee emotions’ were considered and validated through expert survey.

The findings from the preliminary expert survey largely supported the

literature reiterating the criticality of ‘employee emotions’ during post

integration phase. The parameters for measuring ‘desired change outcomes’-

the dependent variables in the research as identified from the literature were:

general outcomes, financial and non financial outcomes.

Further five financial and four non financial change outcomes were identified.

For greater insights into the hierarchical relationship among these nine change

outcome variables, a qualitative analysis using ISM (Interpretive Structural

Modeling) was undertaken.

The results of ISM analysis highlighted the significance of the non financial

outcome variable like ‘human integration’ and ‘cultural integration’ which

emerged as the change drivers during the post merger integration phase.

7.3 FINDINGS FROM THE OPINION SURVEY

The opinion survey was conducted among 215 middle managers from six

organizations that had undergone M&A during the period 2007-12 in India. The key

findings of the empirical survey are summarized as follows:

Factor analysis confirmed 44 items for the questionnaire and the reliability

testing reported Cronbach alpha of above 0.8.

‘Emotional balancing by middle managers’ emerged as a significant predictor

of ‘desired change outcomes’. Regression analysis of controlled impact of

‘employee emotions during change’ and ‘emotional balancing by middle

managers’ explained greater variation for ‘desired change outcomes’, thus

validating the basic conceptual model of the research.

Out of four micro variables of employee emotions ‘resistance to change’ and

‘decreased commitment’ were found to be a predictor for ‘desired change

outcomes’. While for ‘emotional balancing by middle managers’ three micro

variables of ‘employee emotions during change’ (resistance to change,

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decreased commitment and uncertainty) were found to be significant

predictors.

‘Attending to recipient’s emotions’ (ATRE) and ‘commitment to

change’(CTC) emerged as the significant roles of middle managers as a

predictor of ‘desired change outcomes’ (Step wise multiple regression

analysis).

Regression analysis of mediating effect of the ‘roles of middle

managers’highlighted the significance of the two micro variables (ATRE and

CTC).

Partial mediation of ‘commitment to change’ between ‘resistance to change’

by employees and ‘desired change outcomes’ (general and non financial) was

found (Multiple regression analysis).

‘Attending to recipient’s emotions’partially mediates the relationship between

‘uncertainty’ and ‘desired non financial change outcomes’ (Multiple

regression analysis).

7.4 FINDINGS FROM CASE STUDY RESEARCH

Three case studies of M&A from different industries healthcare, pharmaceuticals and

IT with significant employee resistance were selected for an in depth analysis,

namely, Abbott-Piramal, Wipro-Infocrossing and ICICI Bank-Bank of Rajasthan. The

key findings may be summarized as follows:

It was observed from the SAP analysis (Situation- Actor- Process) that the

level of employee resistance was different in all three cases.Abbott faced least

resistance from employees of Piramal and was able to achieve a smoother

integration. The company made employee friendly policies to gain their

commitment. The case survey showed a moderate presence of ‘middle

managers role’ and achievement of intended outcomes. It does not realize the

desired synergies immediately from the merger (Table 6.2), however later in

2014 and 2015 there was a significant improvement in performance. Human

integration was smoother which led to a peaceful organizational adaptation.

In case of Wipro, employees of acquired firm (Infocrossing) witnessed high

level of uncertainty and decreased commitment, despite the efforts to address

employee issues. The top management of the organization could not leverage

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the role of middle managers which lead to a rather chaotic adaptation. The

expert survey showed that they are still struggling to achieve synergies from

this merger, this could be supported by the financial data taken from S&P

capital IQ database which has clearly depicted a decrease in performance of

Wipro in 2008 (after the acquisition of Infocrossing).

ICICI bank initially faced intense employee resistance which was addressed

later by the involvement of middle managers; thus resulting in a smoother

organizational adaptation in the end.There was an improvement in the

financial performance after the acquisition but the trend showed a fall in the

growth rate.

Among the three cases, resistance was highest in case of ICICI bank merger

but involvement of middle managers and HR friendly policies enhanced the

trust and commitment of employees of the merging firms. The respondents

approved that the middle managers played a challenging role during this

chaotic phase and, thus, helped in achieving the desired outcomes.Overall

performance increased in case of ICICI bank after the acquisition.

The most significant role of middle managers as identified from the case

survey was ‘attending to recipient’s emotions’. Although ‘commitment

towards change’ by the middle managers was also given importance by the

experts.

Different practices were observed from the three M&A cases with regard to

middle manager’s role during post integration phase. The presence of middle

managers role was significant in case of ICICI bank as evident from the case

analysis,unlike Wipro where middle managers role was not

leveragedadequately and henceorganizational adaptation was chaotic resulting

in poor performance. Abbott witnessed a smoother integration, which may be

probably due to significant role played by middle managers.

7.5 TRIANGULATION AND SYNTHESIS

Triangulation, in general, refers to the “use of more than one approach to the

investigation of a research question in order to enhance confidence in the ensuing

findings” (Byman, 2001). The basic aim of triangulation is to enhance the validity and

credibility of research. The triangulation approach adopted for theresearch may be

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mapped against the various types of triangulation identified by Denzin (1978) and

summarized in Table 7.1. The three types of possible triangulation, i.e. data,

methodological and theoretical triangulation are further elaborated.

Table 7.1: Triangulation Method Adopted for the Study Type of Triangulation (Denzin, 1978)

Triangulation Approach Adopted for the Research

Data triangulation Perception of various groups of respondents captured

Industry/Domain Experts: Expert survey Middle Managers of firms who had undergone M&A Top Middle Management: respondents of case template

Investigator triangulation Not possible in a doctoral researchas there is a single researcher

Theory triangulation Two theoretical perspectives used in the research Process Theory of Change Theory of Emotional Balancing

Methodological triangulation

Use of both Quantitative and Qualitative methods Multiple methods of data collection - interview, questionnaire

etc.

7.5.1 Methodological Triangulation

Methodological Triangulation refers to the use of more than one method for gathering

data and cross-checking the results obtained from them. A comparison of the results

obtained from different methodological approaches adopted in the study, is

summarized in Table 7.2.

Table 7.2: Methodological Triangulation Methods

Macro Variables

Preliminary Phase: Literature Review &

Expert Survey

Regression Analysis

(Empirical Survey Analysis)

Case Analysis

(Qualitative Analysis)


Out of 8 employee emotions identified from the literature validated by the Experts opinion and four variables merged/dropped.

• 3 out of four micro variables of employee emotions found significant (RTC DC and UN)

• All the four micro variables were signicant

• 2 were highly significant (RTC and DC)

• LI and UN also found significant

Emotional balancing by middle managers

2 micro variables identified from literature (ATRE and CTC)

• Bothmicro variable found significant (ATRE and CTC)


Desired change outcomes

9 micro variables identified from literature found significant in ISM analysis

Desired Change outcomes-DCO) and Non financial outcomes

• 2 most significant outcome variables are HI(Human Integration) and Cultural Integration (CI) of Non Financial outcome category

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These 9 variables were categorized into three micro variables : Change outcomes( financial-DCFO) , Change outcomes( Non financial-DCNFO) and Change outcomes( General-DCO)

(DCNFO) were found to be significant

(DCNFO)

Abbreviations

Employee emotions during change RTC: Resistance to change DC: Decreased Commitment LI: Loss of identity UN: Uncertainty Variables of Emotional balancing by middle managers ATRE: Attending to recipients’ emotions CTC: Commitment towards change

Desired Change outcomes DCO: Desired change outcomes DCFO: Desired change financial outcomes DCNFO: Desired change non financial outcomes HI: Human Integration CI: Cultural Integration

Discussion

While preliminary phase led to the identification of research variables from the

literature and their validation from the experts. Interpretive Structural Modeling

(ISM) - an expert opinion based qualitative modeling method- provided an insight

into the interrelationship among the micro variables of the desired change outcomes.

The ISM model has provided a hierarchical relationship between the outcomes.

Human and cultural integration emerged as the driving force

A comparison of the significant research variables across two validation

methodologies (Regression and Case Analysis) indicates that the results have been

quite consistent. Among the variables of employee emotions ‘Resistance to change’

have been found to be more significant across both the methods. Regarding middle

managers role, both ‘attending to recipient’s emotions’ and ‘commitment to change’

have emerged to be the most critical.

As regards the performance variables, while all the considered factors have

found to be significant, there is almost complete agreement on greater significance of

Human integration across both the methods (regression and case analysis). The cross

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validation of results by multiple methods has generated greater confidence in the

proposed validated model.

7.6 FINAL VALIDATED MODEL

The result of the empirical analysis, especially the structural model obtained both at

the micro and macro levels along with the insights derived from the case analysis

have been depicted in figures below. The validated macro model derived from the

regression analysis shows ‘emotional balancing by middle managers’ as a strong

predictor of ‘desired change outcomes’ as depicted in figure 7.1. It was also found

that when controlled, ‘employee emotions’ along with ‘emotional balancing by

middle managers’ explain greater variation for ‘desired change outcomes’ which is

depicted in figure 7.2.

0.577

Figure 7.1: Emotional Balancing by Middle Managers as Predictor of Desired Change Outcomes

-0.146

.581


Significant relationships at the micro variable level, as depicted in Figure 7.3, have

been delineated into two categories namely ‘Direct paths’ (relationships across

microconstructs derived from regression analysis), and additional links (derived from

case analysis). As evident from figure 7.3, ‘resistance to change’ has emerged as the

most critical of all the ‘employee emotions’ with direct links to the two middle

managers roles. Other variables of employee emotions, ‘decreased commitment’ and






155

‘uncertainty’ were found to be significant for ‘attending to recipient’s emotions’. The

middle managers role ‘attending to recipient’s emotions’ have found to be directly

linked with all the three micro variables of ‘desired change outcomes. The additional

links represents employee emotions ‘loss of identity’ and ‘uncertainty’which were

found to be significant from case analysis affecting the ‘desired non-financial change

outcomes’

Direct Interactions Additional Links from Case Research

Figure 7.3: Final Validated Model with Significant Relationships at Micro Level

Attending to Recipient’s

-0.168

0.635

0.430

-0.226

0.204

0.150

-0.148

-0.284






Loss of Identity

Uncertainty


Desired Change outcomes (General)



-0.068

0.436 0.241

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7.7 SUMMARY OF FINDINGS: REVISITING RESEARCH OBJECTIVES

At the end of any research journey, it is imperative to look back and analyze the key

objectives laiddown at the very outset, in order to evaluate how much has been

achieved. A synthesis of the keyfindings of the research across different phases and

methodologies employed may besummarized in accordance with the objectives laid

down for the research, before highlighting the suggestions, implications and the

contributions made by the study. Each of the sub-sectionsbelow addresses the

research objectives as listed in chapter one. The identification and validation of

keyresearch variables from the literature (section 7.7.1) addresses the first, second and

third objective, followed by the section on research propositions which deal with the

fourth and fifth objective. The conclusions regarding middle managers role during

post integration phase, discussion on key relationships from the validated framework

by empirical and case analysis caters to the rest of the objectives.

7.7.1 Identification and Preliminary Validation of Research Variables (Research

Objectives 1, 2 and 3)

Given the basic assumption, it was imperative to identify, delineate and contextually

validate the research variables at the outset, as envisaged in the first, second, and third

objectives. As a result, the entire preliminary phase was dedicated for this purpose.

After an extensive literature review, eight ‘employee emotions during change’ and

four ‘middle managers role’ were identified, which were then subjected to contextual

validation with the help of an expert survey. After the expert validation all variables

were found to be existent during post integration, but few variables which were found

to be of repetitive nature, were merged andfinally four variables for ‘employee

emotions’ and two ‘middle managers role’ were considered for further study.

Further, to study the third construct i.e. ‘desired change outcomes’- the macro

dependent variable of the study, a qualitative technique (ISM-Interpretive Structural

Modeling) was used to understand the interrelationship and impact of sub variables. A

hierarchical model was developed depicting the relationship.‘Human integration’ and

‘cultural integration’ were identified as the basic drivers, the achievement of which

leads to the achievement of other outcomes as well. Based on the literature review,

five financial and four non financial outcomes have been considered.

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7.7.2 Validation of Conceptual Research Model: Revisiting Research

propositions (Research Objectives 4 and 5)

This sub-section analyzes the theoretical premises (research propositions) used in

developing the research framework for the study, as identified in the fourth and fifth

objective. The synthesized findings based on both, the empirical analysis and case

research, may be discussed vis. a vis. the research propositions as follows:


outcomes (i.e. Smoother post-merger integration).

Results of the empirical survey validated the broad assumption that, emotional

balancing by middle managersemerged to be a significant predictor of desired change

outcomes. Further, two key roles of middle managers- ‘attending to recipient’s

emotions’and‘commitment to change’also emerged to be significant predictors of

change outcomes, thus, validating the assumption put forward by the previous

researchers (Huy, 2002; Floyd and Wooldridge, 1992; Wooldridge et al, 2008).These

relationships have also been validated in the case context which has provided

evidence from the secondary sources as well as case survey. By leveraging the role of

middle managers, merger at ICICI bank and Abbott achieved smoother organizational

adaptation and were categorized as successful mergers. The merger by Wipro is

considered as not so successful, since it failed to leverage the role of middle

managers, thus, facing a chaotic post acquisition phase.


Outcomes.

Research evidences from the literature indicated that ‘employee emotions’ are

heightened during the radical change context of post merger integration phase (Keifer,

2005; Teerikangas, 2010; Reilly et al, 1993; Brundin et al, 2008). The regression

analysis reveals that ‘employee’s emotions’when regressed separately on‘desired

change outcomes’at the macro level was found to be insignificant. While at the micro

level, three variables (resistance to change, uncertainty and decreased

commitment)exhibitsignificant influence on the dependent variables. Further

mediation analysis revealed only ‘resistance to change’ and ‘uncertainty’ explained

greater variation with the dependent micro variables of change outcome. None of the

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micro variables of ‘employee’s emotions’ impact ‘financial outcomes’ while testing

mediation. The case analysis also demonstrated the presence of negative employee

emotions in ICICI bank- Bank of Rajasthan and Wipro-Infocrossing mergers This

validates the theoretical perception of the previous researchers proposing the impact

of employee resistance on change outcomes (Emmanouilides and Giovanis, 2006;

Moosholder et al, 2000; Seo and Hill, 2005).

Proposition 3 – Emotional balancing by middle managers play a mediating

rolebetween employee emotions and desired change outcomes.

Given the significant role played by middle managers, it was hypothesized that they

may play a mediating role between ‘employee emotions’ and ‘desired change

outcomes’. Using Baron and Kenny’s (1986) statistical method of testing mediation, it

was found that ‘commitment to change’ partially mediates the relationship between

‘resistance to change’ and ‘desired change outcomes’ (general and non financial

outcomes). While ‘attending to recipient’s emotions’ partially mediated the

relationship between ‘uncertainty’ and ‘non financial outcomes’. This reiterates the

assumption of the research that there is possible mediation of ‘middle managers role’

in facilitating between‘employee emotions’towards ‘desired change outcomes’ (Bhal

et al, 2009; Teerinkangas et al, 2011; Antila, 2006).

7. 8 MAJOR CONCLUSIONS

Based on the synthesis of findings of the empirically validated models and case

research, the influence of the key research variables affecting the outcome parameters

can be delineated as follows:

The macro variable of ‘employee emotions’, though found to be very high

during the radical change context of M&A, does not influence either

‘emotional balancing by middle managers’ or the ‘desired change outcomes’

separately. However, when ‘employee emotions’ and ‘emotional balancing by

middle managers’ are controlled (R square at .355) explain significant

variation in the ‘desired change outcomes’, strengthening the assumption of

mediating role of middle managers. The analysis also revealed that ‘employee

emotions’ has a negative influence (beta value -14%) on the ‘desired change

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outcomes’ whereas ‘emotional balancing by middle managers’ has a positive

influence explaining about 58% of variation in it.

‘Emotional balancing by middle managers’ emerged to be a strong predictor

of ‘desired change outcomes’. In fact, middle manager’s role of ‘commitment

towards change’emerged as a stronger and more significant predictor of

‘desired change outcomes’ as compared to ‘attending to recipient’s

emotions’.So, a middle manager who is more committed to change initiates

can facilitate the process by attending to the subordinates emotions like

resistance to change and uncertainty, thus achieving the intended change

outcomes.

Regression analysis for testing the mediating effect of ‘middle managers

role’also revealed the significance of the above variables (‘attending to

recipient’s emotions’ and ‘commitment towards change’) as predictors of

‘desired change outcomes’. This implies that the ‘emotional balancing’ role of

middle managers has a direct and immediate effect on ‘non-financial

outcomes’ of change than on the ‘financial outcomes’.

At the micro level two variables of ‘employee emotions’- ‘resistance to

change’(RTC), ‘uncertainty’ and ‘decreased commitment’ (DC) were found to

be significant predictors of ‘desired change outcomes’, affecting either

directly or through the mediator (middle managers role).In all the three cases

of mergers selected for analysis, different practices were observed related to

‘emotional balancing role of middle managers’. ICICI bank faced strong

employee resistance which was balanced by leveraging ‘middle manager role’

and outcomes were achieved. Unlike ICICI bank, in Wipro’s case the

employee emotions (decreased commitment and loss of identity) of acquired

firm were not properly managed owing to a passive role played by middle

managers, thus leading to a poor acquisition performance. Abbott’s case

witnessed a smoother integration, which is largely attributed to an active role

of the middle management in communicating and implementing the employee

friendly policies right from the start.

The empirical analysis and case study both strongly endorsed the role of

middle managers (attending to recipient’s emotions and commitment towards

160

change) in leveraging the post integration process and achieving the change

outcomes.

7.9 MAJOR RECOMMENDATIONS

Based on the findings summarized and presented above, some major

recommendations for the M&A experts, industry and academicians can be

enumerated as follows:

Given the presence of heightened emotions during M&A, management of

employee emotions,especially during post integration phase should be given

due importance and weightage. This in fact should be given precedence over

achieving financial objectives, as negative emotions are found to have

detrimental impact on desired outcomes of change (as highlighted in empirical

survey, ISM and case analysis).

Employee emotions such as resistance to change, decreased commitment, loss

of identity and uncertainty can have an adverse impact on the integration

process and consequently on the change outcomes (as evident in the results).

The case study of ICICI bank demonstrated strong resistance from the

employees which required a lot of effort from the management like providing

extensive training to employees, timely communication (i-Studio Live) and

setting up a grievance redressal portal (I-Care). Wipro also initiated training

programs for employees but was not effective which could be due to the less

involvement by middle managers. Employees should feel their involvement in

the change process by proper communication and training to equip them with

skills and knowledge. Employees concern should be timely addressed at all

key junctures to ensure their support in the change program.

Results indicated that the middle management should be involved in the

integration process. However, the survey showed very few companies

involved the middle managers in the post merger process. This may be the

reason for high failure rate of M&A’s in India. The transition team or the

transformation leaders or the middle managers should be involved in the

process right from the due diligence for bringing out better understanding and

commitment.

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Organizations should strategize to leverage the role of the middle managers in

facilitating smoother integration, as empirically validated by the research.

Often it is left on the attitude of the middle managers, but top management

should give proper training to middle managers to leverage the change

process.

Involvement of middle managers in the strategy can enhance their

commitment which can be a facilitating factor for reducing resistance to

change and smoother human integration. Middle managers role of ‘attending

to recipient’s emotions’ can balance employee emotions such as decreased

commitment, uncertainty etc which can be depicted from empirical analysis

and case study.

In order to capture the maximum potential of any deal, an organization must

specify each outcome and then track it in the post integration phase. This

recommendation can be clear from the findings of ISM. The hierarchical

relationships between the outcome variables, can be considered by the

practitioners to prioritize the focus on outcomes. For example, non financial

outcomes like human and cultural integration should be accorded greater

importance during post merger integration phase compared to the financial

outcomes like sales and ROI. Hence, the driving and dependence relationship

among the outcome variables can be used for strategizing by the top

management.

Organizations should start the integration process as soon as the deal closes

because delays can also demotivate the employees and create uncertainty (case

analysis). It was observed in case of ICICI bank, that they had completed the

HR integration within 30 days of getting the ownership, which might have

removed employees uncertainty related to the merger and thus, making them

accept the change process. Similar strategy can be adopted by other companies

in order to reduce heightened employee emotions.

Finally, since middle managers act as significant mediator between the

employee emotions and change outcomes, their role should be leveraged

during radical change contexts for smoother human integration.This is

expected to result in a more committed workforce, thus, indirectly facilitating

the achievement of desired financial outcomes.

162

7.10 IMPLICATIONS FOR KEY STAKEHOLDERS

The implications of the findings of the research for key stakeholders namely top

management, M&A experts, middle managers, employees of the organization and the

academia may be highlighted as follows.

Top management is the policy and strategy maker for any M&A especially in

making decisions to acquire and then to implement it. The validated research

model highlights the need for leveraging middle managers role during post

integration process by top management which can help the achievement of

‘desired merger outcomes’ better.

Middle management emerged to be a mediator between ‘employee emotions

during change’ and ‘desired change outcomes’, the research framework may

help them to understand the importance of balancing employee’s emotions for

getting intended change outcomes. A conceptual understanding can be

developed, which can help middle managers in predicting what kind of

emotionalcapability they should build up and identifying employees emotion’s

that should be taken care of to reduce the resistance to change.

The validated model can be used by the M&A experts or the integration

managers to understand the post integration process in detail. Framing

strategies with involvement of middle managers, understanding their crucial

role and their role in achieving intended outcomes can be a valuable

contribution.

For the academia, this study is just a step forward with the canvass for future

research wide open for the researchers and the academicians. Besides the

research constructs developed for the study, the research framework too can be

used by the researchers to test it in different industries. The research

framework can also be used for other types of radical change contexts in the

organizations.

163

7.11 RESEARCH CONTRIBUTIONS

The study is an attempt to provide a deeper insights into the human integration aspect

of post merger deal phase, an oft quoted area of M&A failure, both at the global level

and more so in Indian contexts. Some of the significant contributions of the research

under consideration can be enumerated as follows:

The findings of the research strengthens the basic premise of the research that

‘emotional balancing by middle managers’influences desired change

outcomes’.

Application of the concept of emotional balancing in radical change context

of M&A and its empirical validation is an original contribution to the field of

knowledge in change management. The findings of the study also add value

to the domain of organizational psychology and the theory of change process.

Further, the attempt to delineate the mediating role of middle managers is a

significant contribution with key implications for the practitioners.

Besides demonstrating the practical use of a qualitative tool like Interpretive

Structural Modeling (ISM), the hierarchical model of desired change

outcomes is a novel and original contribution to the field of M&A.

The research model is triangulated/ validated by two methodologies –

regression analysis and case study. Such a methodological triangulation which

has infused strong confidence in the applicability of the model is also a

contribution of the study.

Use of SAP framework for explaining the case background has provided more

clarity to the case analysis. The linking of SAP framework to the case analysis

is also an original contribution to the study.

7.12 LIMITATIONS OF THE STUDY

Despite undertaking a comprehensive (empirical opinion survey) and intensive (case

research) approach for the research it cannot be free from limitation given the wide

area of research and the sheer involvement of human effort. Some of the key

limitations of the study may be listed as follows:

164

The empirical survey of the study is constrained by the limitation of an

opinion survey. Though some level of cross- validation with the case facts has

been done, a bias for the response to other items cannot be ruled out.

The study is confined to the perception of acquiring firms only; it would be

more relevant if the acquired firm could also be included. The difficulty in

reaching the employees of the acquired firm was a major constraint.

Case feedbacks were collected from the top managers only, which may bring

in some personal bias.

7.13 DIRECTIONS FOR FUTURE RESEARCH

During the conduct of this research, a lot of insights have been developed which may

pave way for valuable research in the area. Some of the key suggestions for future

research can be enumerated as follows:

As the study focused only on the middle managers perspective of the acquiring

firms, due to time constraints, it may be further extended to the perception of

the acquired firms as well for further generalization of the validated

framework.

Since resistance to change has emerged as the most significant employee

emotions, it is imperative to study the perception of acquired firms employees

who were the main subject to be handled during post integration phase.

Further, the proposed model can be applied to other sectors as well. The

validated model can also be tested to study other forms of radical change

situations.

The mediating role of middle managers established may further be analyzed in

other change context as well.

Another possible area for exploration is the interaction of change outcomes as

highlighted in the model developed by using ISM. There seem to be a

significant contribution of one outcome in achievement of other. Structural

Equation Modeling (SEM) can be applied for gaining deeper insights.

165

7.14 CHAPTER SUMMARY

It may be recalled that the key objective of this research journey was to evolve a

validated framework ensuring achievement of intended outcomes by balancing

‘employee emotions’ by leveraging the ‘role of middle managers’. For this, the

preliminary phase of the study concentrated on the identification, validation and

deeper understanding of the research constructs and their relationships as discussed in

chapter’s two to five. The subsequent two chapters, six and seven, were devoted to

report the analysis and findings of the empirical opinion surveys envisaged for the

study, followed by the detailed analysis of the three select cases interpreting the

empirically validated research model (Chapter 5). This chapter synthesized the

learnings of the study, triangulated the findings from different methods used and in

the last section major findings, recommendations and implications were summarized.

Finally, the significant contributions of the research, its limitations and suggestions

for future research were also laid down paving the way for further valuable additions

in the field.

Thus, in the end, this research work can at best be considered a step forward in

laying the foundations for a more tangible theory building in the fields of

organizational behavior and change management, in the domain of mergers and

acquisitions.

********************************

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