Posted: March 23rd, 2023
The World Explorers Travel Agency is a proposed merger between two large travel agencies, Holiday Seekers Travel Agency and Small World Travel Agency. The merging companies will agree on a “merger of equals,” meaning that regardless of their different histories and corporate cultures, the companies will be equal partners in the new entity (Hofheimer 2013, p. 10). The two firms agree to come together to capitalize on the economies of scales by combining their strengths. For example, the travel agencies entered into a contract to consolidate their resources and expand their markets and generate additional revenue for the common organization. However, the mergers are not always easy because they involve a significant change for each firm and their members. Although mergers and acquisitions are common trends in many industries, they pose a significant challenge for the leaders, including resistance to change and managerial issues that should be addressed to achieve a successful transition.
Description of Issues Affecting the Merger
Mergers and acquisitions are strategic decisions made by the leaders of the involved firms. They are created to offer efficiency, eliminate redundancy, and improve profitability (Duvall-Dickson, 2016, p. 16). They are mostly meant for economic reasons, including the need to increase the geographical reach or to enhance revenue for the new entity. However, Duvall-Dickson (2016) reveals that mergers are not always easy because they face significant challenges, including layoffs that create uneasiness among the employees of the merging firms (p. 16). For example, the Holiday Seekers Travel Agency has 301 workers, while the Small World Travel Agency has 65 employees. The new firm cannot accommodate all the employees because it will operate fewer branches to achieve efficiency. Therefore, it is inevitable that some of the employees will be laid off.
The new merger will also involve a significant change in the corporate cultures of the two travel agencies. Duvall-Dickson (2016) critiques the role of culture in the success or failure of mergers and acquisitions (p. 16). Leaders of the merging companies have been accustomed to a certain way of doing things, their organizational beliefs, and values. Drori, Wrzesniewski, and Ellis (2011) add that the merging companies have to take into account the norms and practices of their firms. The merger is likely to be affected by employees’ resistance from the two travel agencies who are already anxious about the effect of the change in their jobs. The difference in culture might affect even employees who will be retained to work in the new firm.
The management of the two travel agencies will face a challenge in transitioning to the company created by the merger. The leaders of the merging firms are forced to change the meaning of their corporate environment as they contend with the demands of the newly created entity (Drori, Wrzesniewski and Ellis 2011, p. 626). The leaders will face the challenge of implementing the change successfully regardless of concerns about the security of their positions. For example, the two CEOs of the merging firms are already apprehensive about the management places once the two companies become one. World Explorers Travel Agency, the new entity, will require one leader while the other CEO might have to leave the company or take another leadership role.
Potential Effects on the Stakeholders
In the wake of the merger, the company will undergo restructuring and “rightsizing” to achieve the new organizational goals and objectives. Alliances have significant effects on various stakeholders in the affected organizations. Duvall-Dickson (2016) contends that the change is a traumatic event with an impact on the level of trust, satisfaction, and productivity among stakeholders. The number of employees will reduce to serve the 20 physical branches that the new firm will operate. Hence, the members of staff are one of the stakeholder groups that will be affected by the merger. Once the decision is communicated, the company will experience a decline in the motivation level and other conflicts relating to the transition. Notably, the merger will affect all workers, including those who face the risk of being laid off and those who will be retained.
The management will also experience the impact of the transition due to the merging of the two companies. Leaders have a critical strategic responsibility in the successful transition from the current setup to the new company created by the merger (Lin, Chen, & Chu 2015, p. 82). The role is especially critical in addressing cultural compatibility issues between the agencies and their leadership. Thus, leaders will be affected by the change, especially since their place in the new company is uncertain. Various levels of leaders will feel the effect of the change, including board members and the management of the two merging companies. Given that the merged firm cannot accommodate all these individuals, some will be forced to quit. The major challenge for the combined leadership is the formula to use in relieving these individuals of their duties.
Besides leaders and employees, the merging agencies have other key stakeholders, including investors, suppliers, and customers. The individuals and groups might face incapability concerns relating to the significant change. The merger means that they have to form new relationships with the new company, while some even may terminate their contracts because the entity might no longer require their services. Mergers and acquisitions are usually accompanied by uncertainties regarding new relationships (Cheng & Seeger 2012, p. 118). Therefore, the communication between the stakeholders and the leadership is necessary for a successful transition. However, interactions may be affected by the cultural conflicts due to dissatisfaction with the merger process or its outcome.
Solutions to the Challenges
Mergers are critical to achieving the strategic goals of the two agencies, but it is necessary to address the inherent difficulties and adverse effects on the various stakeholder groups. Successful implementation of the change requires the leadership to understand and consider the cultures of the merging firms (Duvall-Dickson 2016, p. 16). Although it is possible for the current cultures to change, the management should allow the change to occur gradually rather than forcing the stakeholders to accept it. The new process should be founded on a shared understanding providing a chance to reflect and interpret the transition toward the merger. Therefore, leaders should work with other affected stakeholders to understand the potential cultural changes and find practical solutions to address them.
Major transitions in organizations require proper communication between the stakeholders to decide the course of action and address emerging conflicts. Cheng and Seeger (2012) suggest the value of the association between communication and organizational culture due to the reciprocal influence of the two concepts and practices (p. 118). Hence, the leadership in the merger should adequately communicate the expectations from the change in a way that all the affected individuals and groups understand. Cultural differences are among the factors behind failures of mergers and acquisitions such as in the Chrysler Corporation and Daimler-Benz’s case (Cheng & Seeger 2012, p. 118). Consequently, leaders can mitigate the adverse outcomes by passing the right information and giving the stakeholders a chance to discuss the course of action for the companies and the affected individuals and groups.
Cultural differences affect individual communication styles and the communication process in mergers and acquisitions. Since communities and cultures have different communication styles, Duvall-Dickson (2016) posits the need to understand the diversity and effectively manage the emerging differences to prevent potential resistance to the change (p. 16). Sharing information and communicating with the stakeholders could be a necessary step since the merger is underway. Since the affected individuals and groups, especially the leaders and employees significantly influence the integration process, they should be involved throughout the merger process to prevent emerging conflicts. Involving them from the start of the process ensures that they understand and support the developing decisions by addressing all emerging issues and possible conflicts. Thus, they will potentially accept the outcome even if it fails to favor them.
Leadership is necessary for the success of the change due to the role played by leaders in addressing emerging issues that might negatively affect the transition. Leaders develop a vision for the proposed change and ensure that the followers support it by making it meaningful and valuable to them (Gorran Farkas, 2013, p. 13). The stakeholders, especially employees desire the best outcome for their firms. Thus, with effective leadership, they are most likely to understand the importance of the change and support its implementation. However, they require visionary leadership to assist them in the entire process to the point where they can accept the transition entirely without further conflicts, cultural or interpersonal (Duvall-Dickson 2016, p. 16). Hence, change leadership plays a significant role in mergers and acquisitions since employees and other stakeholder require direction to achieve success.
A healthy relationship exists between leadership and change readiness among employees and other stakeholders in the process. Leaders also determine the level of commitment to the change by ensuring that followers understand the process and its strategic importance to support it (Santhidran, Chandran, & Borromeo 2013, p. 350). The relationship between leadership, readiness, and commitment suggest the critical role of leaders in organizational change as well as in addressing potential barriers to the process. Gorran Farkas (2013) supports the findings by suggesting the role of leaders in creating a convincing vision for the organization relating to the change process (p. 13). The vision should be clearly defined and understandable for the followers to support its implementation.
Therefore, change leadership entails working with the people to complete the transition from one condition to another. For example, in the merger of the two travel agencies, leadership is crucial in communicating the importance of the business decision in a way that followers support and accept the change. Leaders of the two merging agencies should spearhead the change through understanding of the internal structures of the agencies as well as the market within which they operate. The leader also plays a role in understanding the differences in the cultures of the two firms to make decisions to merge the two without damaging cultural differences (Duvall-Dickson, 2016, p. 16). As a result, the leader is the most critical stakeholder in the success of the merger process.
Leaders are expected to work with the followers in achieving a successful transition to the newly formed firm. Consequently, the leader should use the most effective leadership style to reach the expected level of commitment and support for the change (Santhidran, Chandran, & Borromeo 2013, p. 350). According to Long, Yusof, Kowang, and Heng (2014), transformational leadership is suitable in the situation to ensure that the followers understand and support the transition. A transformational leader comprehends the change and anticipates potential barriers to address them effectively and avoid possible adverse effects on the organization. Additionally, such leadership informs effective interactions with the followers such that they understand the need for the change and support the transition to the new state.
Transformational leadership has various qualities that make it the most effective style during transition periods. Such individuals are inspirational and motivate their followers to work towards getting proper results regardless of challenges (Long, Yusof, Kowang, and Heng, 2014, 118). The leaders gain trust from the followers who become willing supporters of their vision (Gorran Farkas, 2013, p. 13). Furthermore, inspired followers are prepared to make necessary sacrifices for the success of their organizations. Transformational leaders instill eagerness on the employees and other stakeholders to accept the change and prevent any form of resistance. They also address any concerns among the stakeholders to avoid adverse effects of conflicts. Thus, such leaders are critical for the formation of the World Explorers Travel Agency from the merger of the two travel agencies.
The merger requires strong change leadership to prevent failure due to cultural conflicts and the current concerns among the top management and other stakeholders. Regardless of the potential effects on the different individuals and groups, effective leadership will recognize the strategic significance of the merger and implement necessary measures and strategies, working with other members of the organization to achieve successful transformation (Long, Yusof, Kowang, & Heng 2014, 118). The change should begin at the top of the management hierarchy and communicate down to the other members in such a way that they understand and support the transition. According to Appelbaum, Degbe, MacDonald, and Nguyen-Quang (2015), the CEOs and presidents of the affected companies should lead the change since they understand the strategic elements of the organizations (p. 136). Hence, they should make proper decisions and work with the rest of the members in implementing them.
Leaders cannot work alone to achieve the anticipated change. Thus, a team spirit is necessary, which could influence the employees to support a seamless transition from the separate companies to a newly merged entity. Transformational leaders achieve a lot by working with their followers and other individuals and groups affected by the change (Long, Yusof, Kowang, and Heng 2014, p. 118). In the case of the merger to form a new travel agency, the CEOs should work together to create a task force to implement the change. The leaders are the most likely to understand and support the change, then engage the rest of the members in achieving the goals (Appelbaum, Degbe, MacDonald & Nguyen-Quang 2015, p. 136). The strategic task force will research all aspects relating to the change and make recommendations to other stakeholders in a clear and understandable manner.
A working team comprising of various members of the organization is the most effective approach compared to situations where leaders decide and implement changes without involving other affected individuals and groups. Appelbaum, Degbe, MacDonald, and Nguyen-Quang (2015) posit the importance of creating an inclusive team since while changes originate from the top, they require employees to implement them from the bottom (p. 136). Working as a team enables effective recognition of potential barriers to the merger and mitigate them to prevent detrimental effects on the change process. Teams are more successful than working in isolation, especially when researching circumstances surrounding the change and addressing any emerging issues that might hinder successful implementation. Furthermore, teams involve constant communication and information sharing to deal with potential conflicts and any other barrier to the change process.
The two CEOs in the merger of the travel agencies should institute a research and development team to carry out market research and analysis to establish the clear picture of the operating environment and the cultures of the two firms, including the possible effects of cultural differences. The team should study the competitive environment as well as create a strategic plan to make the new firm more competitive. The team should be responsible for a cost-benefit analysis of the change process before negotiations to define strategic objectives to pursue in the process. Decision-making should be informed by the outcome of the analysis and recommendations of the task force (Appelbaum, Degbe, MacDonald & Nguyen-Quang 2015, p. 136). Therefore, a capable team will allow the newly established company to operate successfully and mitigate potential barriers using evidence-based decision-making.
Cultural differences could be detrimental to the success of the merger and the conditions of the newly created firm long after the final decision. Cultural differences potentially impact on consolidation and hinder the potential for achieving the shared objectives (Duvall-Dickson 2016, p. 16). The differences in culture and communication behaviors emerge in such strategic moves since they merge two companies with different corporate cultures. According to Cheng and Seeger (2012), the situation becomes a source of conflict relating to the extent of cultural adaptation in the newly created entity to achieve the integrated benefits. Research shows that potential challenges may arise during merger due to the cultural differences unless the leadership addresses them effectively.
Many mergers fail to achieve their objectives because of cultural compatibility challenges between the companies and their leadership. Many stakeholders in such deals suggest the incompatibility concerns given that each of the merging firms has its different beliefs and values, as well as the way of doing things (Duvall-Dickson 2016, p. 16). Long before the merger, some workers may feel that their interests might not be accommodated in the new venture due to the culture and communication behaviors common in the separate entities before the merger (Cheng & Seeger 2012, p. 118). Consequently, the management should realize the potential effects of the differences and address them to prevent detrimental effects on the outcome of the merger.
Cultural barriers are the leading factor behind resistance to significant organizational changes, explaining the importance of culture management to mitigate adverse outcomes. Hence, the task force should understand the possible resistance resulting from cultural differences and manage them strategically by communicating openly with the affected stakeholders. Culture management to mitigate change resistance depends on supportive leadership, which is capable of understanding the concerns of the followers and addressing them through effective collaboration and cooperation (Jones & Van de Ven 2016, p. 7). The leader should have the capacity to influence the personnel, which is a positive quality in addressing cultural differences and supporting the followers to help the strategic decision. Besides, working with people will play a decisive role in creating a new culture of the merged entity aligned with the emerging strategic needs.
The change is critical for the success of the new merger. Therefore, the implementers should understand and use the most effective change implementation model such as the Lewin’s change framework. The model has three stages through which the change undergoes for effective implementation (see figure 1 below).
Figure 1. The Kurt Lewin’s Three Steps Model, Hussein et al. (2016)
The initial step involves communicating with the affected stakeholders about the importance of the proposed change to ensure that they understand and accept the initiative. The phase entails a transformation of the prevailing status quo to establish new ways of working, including a new culture for the merger. The leader should create a convincing message supported by evidence that would convince the stakeholders to support the strategic vision by revealing that the current ways are not achieving expected benefits (Hussein et al. 2016, p. 124). For instance, although the separate firms have been serving their clients, they have not managed to expand their market and increase revenue in the last three years. Thus, the leaders should realize the need for change to improve the productivity and profitability of the firms by merging them and working together.
The change process is initiated by the earlier stage, unfreeze after an aspect of uncertainty. The second stage is where the leadership team resolves the issue and reforms the mode of operation. The stakeholders will start to believe and support the change, including the new ways of functioning. According to Cummings, Bridgman, and Brown (2016), the members of the organization will start to behave in the expected direction (p. 34). Although there could be some degree of resistance, employees will ultimately agree and support the transition depending on the effectiveness of the leaders in communicating the change.
Refreeze is the final stage in the change model. The phase takes place when the change has been implemented, and the members of the organization are working in a new way. At this point, the leaders will institutionalize and internalize the reform by making it a part of the daily operations of the organization (Hussein et al. 2016, p. 124). The stakeholders at this stage should feel comfortable with the transition and the stability achieved during this stage. The members should be allowed to celebrate the success once the results are delivered to achieve sustainability.
It is not enough that the management works with the other stakeholders to implement the new change. Hence, the process does not stop after implementation of the transition and the beginning of the new merger. The new entity should achieve real integration for the members to work together for long-term benefits (Yoon & Kim 2015, p. 163). Leaders should remain proactive to ensure that the new changes have become a part of the new working environment. The most critical decision is to create a new culture for World Explorers Travel Agency, including new values and beliefs that the members should adopt. Documentation of the change is also essential to institutionalize the process and make it a part of the new firm. A training and development program is necessary to instill new skills and knowledge depending on the new operating environment. The employees should become accustomed to the new operations to prevent future issues or conflicts. They should understand that they are working in a new organization with a different culture and expectations to avoid past differences from affecting the performance expectations of the merger.
Mergers and acquisitions are strategic business decisions aimed at improving the financial position of the merging companies. Regardless of the importance of these business arrangements, they are not always successful because of emerging conflicts due to cultural differences between the two merging firms. For Holiday Seekers Travel Agency and Small World Travel Agency to effectively merge into World Explorers Travel Agency, the management should understand and resolve potential conflicts and related resistance to the change. Transformational leadership is the most effective style to deal with the issues since the leader should understand how to work with the followers to achieve a seamless transition. Furthermore, the leadership should consider a useful change model to implement a sustainable transformation for the travel agency. Kurt Lewin’s Three Steps Model will provide the course of action for the management to avoid resistance and effectively change the operating environment. Besides, the executives should institutionalize the change and the new culture to ensure a lasting effect. It is worth noting that leaders have a critical role to play in the success of the merger between the two travel agencies.
Place an order in 3 easy steps. Takes less than 5 mins.