Interorganizational

The fourth and final level is the interface between organizations. This interface can take many forms—mergers, acquisitions, strategic alliances, joint ventures, consortia, and partnerships represent the main ones.

There are several reasons for these “joinings.” Two reasons stand out: (1) share resources, some of which perhaps being scarce, that neither organiza­tion by itself can maintain, and (2) improve the management of costs by reducing redundancies. By their very nature these joinings force organization change, in general, and generate conflict in particular. Most of these joinings, especially in the form of mergers and acquisitions, fail. What is promised to stakeholders— increased sales, savings, larger market share, and “syngergies”—simply does not occur, at least for the most part. In their extensive study of interorganizational relations, Burke and Biggart (1997) found that the majority of mergers and acqui­sitions failures are primarily due to the following reasons or conditions:

• Insufficient clarity about goals and how to measure progress toward the goals

• Imbalance of power and control between the two organizations when merged or, say, a strategic alliance or joint venture is established

• Imbalance of expertise, status, and/or prestige between the two parties

• Overconfident and unrealistic notions about future success of the relation­ship, that is, holding a belief of having sufficient control over key variables

• Lack of a contingency plan (organization change including these joinings never unfolds as expected)

• Lack of perceived equity, for example, distributions of key jobs and roles

As can easily be imagined, conditions for success are the opposite of those on the failure list.

• Having a superordinate goal, that is, a goal or goals that can be accom­plished only through the cooperative efforts of the two parties (See the section on “Coercion and Confrontations” in Chapter 2 for the original research in this domain, the work of Sherif [for example, Sherif and Sherif, 1969] and Blake, Shepard, and Mouton [1964].)

• Having a balance of power, expertise, and status

• Creating mutual gain

• Having a committed leader

• Alignment of rewards (In the early stages of a merger or acquisition, it is important to consolidate various compensation systems into one.)

• Having respect for differences

• Achieving equity

• Having realistic assumptions about what can be accomplished and in what time frame

• Having good luck!

(As summarized in Burke, 2002.)

A few years ago I was consulting with the mortgage division of a large bank. They had recently gone through an acquisition, although it was called a merger, and at the time was about to experience another one. In a meeting with seven executives (some of whom were the acquirers and others the acquired) of the new, larger mortgage division, and now about to become even larger, I asked them one question. What have you learned from the previous joining that you think would apply to the forthcoming acquisition? These executives were weary from their previous experience, but maybe applying some lessons learned, this next “round” might be a little easier. A brief summary of their responses to my question were:

1. They emphasized the importance of having a vision for the future (sound familiar?).

2. They noted that having a rationale behind the joining and explaining this carefully to all those affected is critical.

3. They stressed the importance of being open and honest about the change.

4. They pointed out how important it is in the early stages to have informal relations between the two parties, such as going to a ballgame together, having meals together, and so on.

5. These executives argued that rapid decision making was imperative even if some of the decisions would have to be changed later. They pointed out that people cry for structure and order and this need should be addressed.

6. The seven executives emphasized the importance of what they referred to as “walking the talk,” meaning matching words with actions, or the absence of hypocrisy.

7. They stated that in the midst of this kind of organization change, typically, the customer is forgotten. With so much time and energy being focused inwardly, conducting the business and serving customers suffers.

These responses from the executives were based on their experiences and do not represent the results of a rigorous study. Yet, as can be seen, there is con­siderable overlap with the findings from the Burke and Biggart (1997) study.

While it is true that most mergers and acquisitions do not achieve what is promised to stakeholders and constituents, some do succeed. For one that not only succeeded with merging two companies but two nationalities in addition (British and American), see Bauman, Jackson, and Lawrence (1997).