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RUNNING HEAD: INTEGRATING THEORY ON MERGERS AND ACQUISITIONS

Integrating strategy and change management theory on merger and acquisitions

Alannah E. Rafferty

School of Management

UNSW Business School

University of NSW

Ph: +61 2 9385 9710

a.rafferty@unsw.edu.au

Michael Shayne Gary

School of Management

UNSW Business School

University of NSW

Authors’ Note: The preparation of this book chapter was supported by an Australian

Research Council Discovery Grant (DP13010680) awarded to the first author.

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Abstract

In this chapter, we argue that it is important to consolidate knowledge from the

strategy implementation literature and the change management literature to delineate

common themes and unique insights offered by these two bodies of work in relation to

mergers and acquisitions (M&As). Researchers’ inability to consistently explain M&A

outcomes may occur, at least in part, because researchers have tended to operate in fairly

strict discipline silos such that the strategy implementation and change management

literatures have developed independently and have only marginally informed one another. We

develop an integrated framework of the key processes driving M&A outcomes based on these

two bodies of work. We build an integrated model which identifies a number of feedback

effects among strategy implementation decisions, change management decisions, employees’

perceptions of change management processes and practices, employee attitudes, and M&A

outcomes over time. Discussion focuses on the importance of exploring a number of issues

including the need to consider change management implementation decisions at the

organizational level, an important novel aspect of our model.

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Integrating strategy and change management theory on merger and acquisitions

The value of worldwide merger and acquisition (M&A) investments totalled US$3.5

trillion during 2014, a 47% increase from 2013 (Toole, 2015). Research shows, however, that

many M&A investments destroy economic value (Haleblian, Devers, McNamara, Carpenter,

& Davison, 2009; King, Dalton, Daily, & Covin, 2004). Industry studies estimate that

between 70-90% of M&A’s fail to deliver the benefits that initially motivated the deal

(Christensen, Alton, Rising, & Waldeck, 2011). In addition, recent research reveals that only

nine per cent of business leaders think their merger or acquisition fully achieved its original

objectives (Hay Group, 2015). Academic evidence also shows that the change and disruption

associated with M&A restructuring often damages employee well-being and reduces

organizational capabilities as high performing individuals leave the company (Rafferty &

Restubog, 2010).

However, it is difficult to provide reliable advice to managers about how to improve

M&A outcomes because researchers do not currently have a good understanding of why

some mergers succeed while the vast majority fail. In their meta-analysis of M&A strategy

research, King et al. (2004) argued that “Empirical research has not consistently identified

antecedents for predicting post-acquisition performance. …our results indicate that

unidentified variables may explain significant variance in post-acquisition performance,

suggesting the need for additional theory development.” Similarly, change management

scholars have reflected that while there has been a good deal of research on the human,

organizational, and cultural aspects of M&A over the last 30 years, “…there have only been

modest improvements in the M&A success rate” (Marks & Mirvis, 2011: 161).
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Researchers’ inability to consistently explain M&A outcomes may occur, at least in

part, because researchers have tended to operate in fairly strict discipline silos (Larsson &

Finkelstein, 1999). For example, the strategy implementation and change management

literatures have developed independently and have only marginally informed one another

(Bauer & Matzler, 2014; Cartwright & Cooper, 2012). We argue that it is important to

consolidate knowledge from these two literatures so that we can delineate the common

themes and identify the unique insights offered by these two bodies of work. In particular, we

suggest that while the strategy implementation and organizational change literatures have

both contributed important insights regarding many aspects of M&As, the separation of these

bodies of work has contributed to an incomplete understanding of a very complex

phenomenon.

In summary, in this chapter we seek to synthesize the strategy implementation and

organizational change management literatures to develop an integrated framework of the key

processes driving M&A outcomes. Our model identifies a number of previously unexplored

feedback effects among strategy implementation decisions, the overarching change

management plan, employees’ perceptions of change management processes and practices,

employee attitudes, and M&A outcomes over time.

Contributions of an integrated conceptual framework

We identify three main contributions that emerge from the development of an

integrated theoretical framework encompassing constructs from the strategy implementation

and change management literatures. First, integrating constructs from these two literatures

into a single theoretical model results in the identification of: 1) organizational-level change

management decisions that have previously not been explicitly considered and 2) previously

unexplored relationships (e.g., between strategy implementation decisions and employee

perceptions of change implementation) that we argue represent important factors that drive
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M&A success. Second, we build on initial theorizing in the strategy literature that has

identified resistance to change as a critical psychological impediment to synergy realization

in M&As (Larsson & Finkelstein, 1999). We expand on this initial thinking and propose that

strategy implementation decisions and change management implementation decisions

ultimately influence employee change attitudes and in particular change readiness and

resistance to change, which in turn influence M&A outcomes. The inclusion of both positive

and negative change attitudes as mediators of relationships is important because it

acknowledges that employees may experience ambivalent responses to organizational change

events (Oreg & Sverdlik, 2011; Piderit, 2000). Overall, our model proposes that employees’

change attitudes are critical psychological mediators of strategy implementation and change

management implementation perceptions on M&A success.

Third, our theoretical model identifies the feedback effects between M&A outcomes,

employee attitudes, strategy implementation decisions and change management decisions

over time. For example, managers may respond to poor employee outcomes – such as low

levels of change-supportive attitudes or behaviours at a given time t during the integration –

by improving the frequency of change communications throughout the organization. This is

likely to result in more positive employee attitudes towards change (at time t + k) and,

ultimately, leads to improved employee attitudes and behaviors over time, which in turn is

likely to be associated with improved change implementation success. To date, most prior

empirical research on M&As has assumed that strategy implementation and change

management choices and perceptions remain fixed over the course of the post-acquisition

integration. However, large-scale integrations often span 2-3 years (and sometimes longer)

and recent research shows that implementation and change management decisions typically

adapt over time in response to outcome feedback (Atkinson & Gary, 2012, 2013, 2015; Gary,

2012). This is consistent with research that shows managerial implementation decisions
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evolve over time in response to outcome feedback throughout large-scale diversification

initiatives (Gary, 2005, 2010) and with research documenting managers’ pervasive use of

decision rules and routines in making decisions over time (Gary, Kunc, Morecroft, &

Rockart, 2008; Gary & Wood, 2011). Understanding these feedback effects and complex

relationships over time will enable research to provide recommendations for improving

decision making, resulting in a higher likelihood of positive employee change management

attitudes and reduced negative change attitudes, and ultimately, will enhance employee and

organizational outcomes after implementation of a M&A.

Conceptual Framework

Figure 1 displays the conceptual framework that is developed in this chapter. We first

examine strategy implementation research, which has highlighted three M&A integration

decisions associated with post-acquisition organization outcomes: speed of integration

(Homburg & Bucerius, 2006), level of structural integration (Haspeslagh & Jemison, 1991;

Pablo, 1994), and top management team turnover (Cording, Christmann, & King, 2008; Zollo

& Singh, 2004). We also identify a a range of critical organizational-level change

management decisions that need to be made when implementing any large-scale change. For

example, senior managers need to determine the sequence or the order in which changes to

key organizational systems and processes is to occur and in what order aspects of the

organization are to be modified with a central decision involving whether “high-impact” or

more peripheral aspects of the organization to be modified early on in a change process (e.g.,

Amis, Slack, & Hinings, 2004; Klarner & Raisch, 2013; Liguori, 2012). In addition, senior

managers need to decide how much employee participation is possible or desirable based on

how quickly change is to be implemented. Senior managers also make high-level decisions

about how to communicate about change and how much information is to be provided to

employees.
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These high-level change decisions were evident in a recent case study of a large-scale

M&A integration (Atkinson & Gary, 2015). In particular, these authors found that senior

management recognized partway through the integration that the intensity of change (i.e., the

amount of change in a given time period) had become overwhelming in some areas of the

organization. Senior managers, therefore, decided that organizational decision-making around

the change needed to more directly consider how to coordinate the different change initiatives

so as to ensure that employees were able to manage with the intensity of change occurring in

that area of the organization. On a quarterly basis, senior managers utilized a portfolio view

of all major change activity across the organization to set priorities and assess the risks of the

total volume of change impacting different parts of the organization. If the volume of change

was considered too great for one or more parts of the organization, then manager adjusted the

schedules of change initiatives as needed to ensure that the changes were manageable.

However, despite the obvious importance of the organizational-level change

implementation decisions that are made by senior management and/or other change agents,

which are apparent in the above case study example, research on this topic is relatively

uncommon (Ford & Greer, 2006). In this chapter, we argue that a company’s formal or

informal overarching change implementation plan will influence how and when change

occurs in that organization. In particular, the overarching change implementation plan will

provide a guide that allows an organization’s managers and other change agents to make the

day-to-day decisions about how to implement change. We suggest that this change

implementation plan will directly affect employees’ perceptions of the change’s content (i.e.,

the what of change) and process (i.e., how a change is implemented). In this chapter, we

discuss on one aspect of the change’s content, and in particular, the extent of change that

employees’ experience a merger as experienced as transformational. We also focus on two

change management processes; the extent to which employees report that they have
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opportunities to participate in change and the quality of change information they report they

are provided.

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INSERT FIGURE 1 AROUND HERE

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We propose nine hypotheses based on the relationships shown in our conceptual

framework. The first five hypotheses detail a mix of established (i.e., Hypotheses 1a, 1b, 3b,

3c, 4a, 4b, 4c, 5b) and novel relationships (i.e., 2a, 2b, 3a, 5a). Our final three hypotheses

focus on testing novel hypotheses on the feedback effects that emerge in our model over time.

Below, we discuss each of the key elements in our conceptual model in some detail.

Strategy Implementation Decisions

An important area of research within the strategic management literature examines

how different implementation decisions impact organisation performance (Gary, 2005, 2010).

Scholars have identified a number of critical implementation decisions that are made when

businesses seek to integrate the target and acquirer companies involved in a M&A. Three

integration decisions for which there is a strong theoretical basis in addition to empirical

support are: speed of integration (Homburg & Bucerius, 2006), level of structural integration

(Haspeslagh & Jemison, 1991; Pablo, 1994), and top management team turnover (Cording et

al., 2008).

The level of structural integration that is desired has been identified as an important

decision in the post-acquisition/post-merger process (Buono & Bowditch, 2003; Haspeslagh

& Jemison, 1991; Pablo, 1994; Shrivastava, 1986; Yunker, 1983). This construct refers to the

extent to which the units/functions of the acquired and target businesses will be integrated

and harmonized. Management must make a decision about the desired degree of interaction

and coordination between the joining businesses, and then implement this decision in the
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post-acquisition integration through, for instance restructuring and altering material flows.

This may involve adapting the activities within the joining businesses to realize technical

synergies, altering bureaucratic mechanisms of authority and control to ensure internal

coherence, and transforming systems of values, beliefs, and practices to create congruent

organizational frames of reference (Schweiger, Csiszar, & Napier, 1994). The desired level of

integration has implications for the extent of changes that will be required in the functional

activity arrangements, organizational structures and systems, and cultures of combining

organizations to facilitate their consolidation into a functioning whole. In order to realize any

of the potential synergy benefits that motivate M&A transactions – including expected cost

savings and revenue improvements from economies of scale and scope – some level of

integration is required (Datta, 1991; Hunt, 1990; Schwieger, Ivancevich, & Power, 1987).

A number of typologies of the level of structural integration have been developed, all

of which distinguish between high and low degrees of integration (e.g., Haspeslagh &

Jemison, 1991; Hunt, 1990; Napier, 1989). A low level of structural integration maintains

each business separately with only modest interaction and coordination mechanisms

implemented after the acquisition. At the other end of the spectrum, a high level of structural

integration might involve absorbing the acquired business completely into the acquirer’s

existing organization structure and other control systems. In the integration phase, well-

established operational routines and processes are partially or completely changed and

harmonized throughout the new combined organization (Buono & Bowditch, 2003;

Haspeslagh & Jemison, 1991). This phase of a M&A has been identified as posing various

risks and has been associated with employee resistance and cultural conflict between the

acquirer and target businesses (Homburg & Bucerius, 2006; Larsson & Finkelstein, 1999).

However, without any integration, resource redeployment and elimination of redundant

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resources are not feasible and the synergy benefits that motivated the transaction will not be

realized (Cording et al., 2008; Homburg & Bucerius, 2006; Karim, 2006; Pablo, 1994).

Speed of integration also has often been identified as an important decision in the

post-acquisition M&A process (e.g., Chatterjee, Lubatkin, Schweiger, & Weber, 1992;

Haspeslagh & Jemison, 1991). Speed of integration refers to the amount of time from when

the acquirer takes ownership of the target until the desired level of integration of systems,

structures, activities, and processes has been achieved. As an example, typical decisions after

an M&A relate to the speed at which differences between the two joining businesses

concerning their marketing/sales information systems, sales force structures, and

product/brand portfolios should be consolidated.

A number of studies, including case studies and large-sample surveys, have

investigated the speed of integration. In a case-based analysis of six technology sector

acquisitions, Inkpen, Sundaram, and Rockwood (2000) identified faster speed of integration

as an important driver of successful post-merger integration. Cannella and Hambrick (1993)

argued that a fast integration is advantageous because it minimizes disruption to employees.

Homburg and Bucerius (2006) argued that a fast integration reduces the time during which

competitors may profit from an acquirer being distracted by integration issues and takes

advantage of the momentum in the early enthusiasm phase after the deal. They found that a

faster speed of integration is positively associated with M&A success (Homburg & Bucerius,

2006). The authors defined M&A success as the merging firms’ return on sales after the

large-scale change compared to the merging firms’ situation prior to the change. Other

scholars have argued that rapid integration improves acquisition performance by accelerating

value creation, exploitation of synergies, and returns on investment (Angwin, 2004; Larsson,

Brousseau, Driver, & Sweet, 2004; Sirower, 2000).

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In contrast, other empirical research suggests, however, that a slow speed of

integration is appropriate under some conditions (e.g., Pablo, 1994; Shrivastava, 1986). For

example, Olie (1994) found, based on several case studies, that a slow integration process can

minimize conflicts between the merging partners. Ranft and Lord (2002), also adopted a case

study methodology, and reported that a slow integration can enhance trust building between

the merging firms’ employees. Haspeslagh and Jemison (1991) reported that the appropriate

speed of integration depends on the joint influence of the need for strategic interdependence

and the need for organizational autonomy of the involved firms. Homburg and Bucerius

(2006) reported that the relationship between speed of integration and M&A success is

moderated by internal and external relatedness. Specifically, in explaining M&A success they

found a negative interaction effect of external relatedness and speed of integration, and a

positive interaction effect of internal relatedness and speed of integration. External

relatedness captures the similarity between the merging firms’ target markets and also market

positioning (i.e., the stance towards the external market). Internal relatedness includes

assessments of similar strategic orientation, management style (a component of

organizational culture), and performance.

In the organizational change literature, researchers have discussed a concept that

seems to have some similarities with the speed of integration - the pace of change. Amis et al.

(2004) suggest that a critical decision that occurs when an organization implements change is

how quickly changes are to be implemented in an organization. In the change literature, when

discussing revolutionary or transformational organizational changes, researchers have

generally argued that such changes need to be implemented quickly so as to generate the

momentum required to overcome organizational inertia (Miller & Chen, 1994). However,

empirical results have not always supported this argument. In their 12-year study of 36

Canadian Olympic organizations, for example, Amis et al. reported that organizations that
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successfully transformed themselves over that period did so with a slow change

implementation. The authors attributed this to the political sensitivity of the changes being

implemented, and the need to develop positive relationships among those affected by

changes.

Finally, the percentage of the top management team that is replaced after a M&A is

another important strategic decision in the post-acquisition M&A process (Walsh, 1988;

Walsh & Ellwood, 1991; Zollo & Singh, 2004). Some fraction of the top management team

of the target business can be either retained and motivated to cooperate, or replaced with top

managers from the acquiring business. According to proponents of the 'market for corporate

control' hypothesis, the better top management team of the acquirer should gain control of the

productive assets of the target business and then create value by displacing the less competent

team (Jensen & Ruback, 1983; Manne, 1965). However, research shows that replacing the

target's top management team results in reduced economic performance because it entails the

loss of human and social capital (Cannella & Hambrick, 1993; Krishnan, Miller, & Judge,

1997; Zollo & Singh, 2004).

Zollo and Singh (2004) argued that replacing the target's top management team might

be connected with enhanced performance if the acquired business has low quality

management. Under such circumstances, the advantages of establishing a better management

team could outweigh the potential disruptions to routines and motivation within the target

business. In contrast, replacing a high quality management team in a high performing target

business is likely to be detrimental to the performance of the combined entity. Zollo and

Singh reported a negative interaction effect of top management replacement and resource

quality on performance, indicating that top management replacement is increasingly

correlated with poorer performance when the resource quality of the acquired unit increases.
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In summary, research has identified three strategy implementation decisions that

directly influence the success of mergers and acquisitions: level of integration, speed of

integration, and top management team turnover. In this chapter, we expand current theorizing

to propose that the effects of these three decisions on M&A outcomes are mediated by

employee perceptions of change implementation, which in turn influence employee change

attitudes, and ultimately, M&A success.

Change Management Decisions

There are a range of critical organizational-level change management decisions that

need to be adopted when implementing large-scale organizational changes. Ford and Greer

(2006: 421) discuss organizational-level change implementation decisions as involving

“sequences of individual and collective events, actions, and activities unfolding over time.”

Ultimately, these individual and collective activities are designed to ensure successful

implementation of proposed changes. Despite the obvious importance of organizational-level

change implementation decisions, research on this topic is relatively uncommon in the

change literature (Ford & Greer, 2006). In this chapter, we suggest that an overarching

change implementation plan enables managers and change agents to make the day-to-day

decisions about how to implement change. In particular, we focus on three decisions that are

part of the overarching change implementation plan: the sequence and order of changes, how

much to involve employees in the decision making process about changes, and how much to

communicate with employees about changes.

Research suggests that the change implementation process at the organizational-level

broadly determines how a change will be managed and operationalized at the group level.

Although each group will develop a unique group-level implementation plan that suits their

particular circumstances and personnel (Whelan-Barry, Gordon, & Hinings, 2003), ultimately

the organizational-level change implementation plan determines the change processes

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adopted when implementing change. This includes the frequency and type of communication

strategies adopted and the amount of participation in change that is provided. These aspects

of the organization’s change implementation plan will ultimately also influence the extent to

which employees report that change represents a dramatic shift in the way things are done

(transformational change) or is more incremental and consistent with current ways of

operating (incremental change). Next, we discuss how the organization’s change

implementation plan influences employees’ subjective perceptions about how changes are

implemented and managed in their organization.

Employee Perceptions of Change Management Implementation

Employees’ subjective perceptions of how organizational changes are implemented

are crucial to the success of organizational changes (Oreg, Vakola, & Armenakis, 2011). We

focus on the influence of strategy implementation decisions and change management

decisions on individuals’ perceptions of the content of change and on the process of change

they experience. The content of change refers to the “what” of change (Devos, Buelens, &

Bouckenooghe, 2007). That is, the content of change is concerned with what has been

modified in an organizational system (Devos et al., 2007), which in turn determines the likely

impact of a change on an individual. Rafferty and Griffin (2006) defined transformational

change as an individual’s subjective perception regarding the extent to which change has

involved modifications to the core systems of an organization including traditional ways of

working, values, structure, and strategy. Transformational change, by its very nature,

involves a dramatic shift in basic aspects of an organization and therefore has a considerable

impact on employees. In contrast, incremental change involves changes to less central aspects

of an organization and is likely to result in relatively minor changes to an organization and to

employees’ work lives. While the content of change has been identified as a central

characteristic of organizational change, we were only able to identify one empirical study that
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explicitly examined the influence of the content of change on M&A success (Bhatti, Gertz, &

Pederson, in press).

Change processes refer to the specific methods used to implement organizational

change (Self, Armenakis, & Schraeder, 2007). A number of empirical studies have explored

the influence of a range of individual change processes during M&As including the quality of

communication (Rafferty & Restubog, 2010; van Dick, Ullrich, & Tissington, 2006) and the

fairness of change processes (Schumacher, Schreurs, Van Emmerik, & De Witte, in press).

Other researchers have examined change process measures that incorporate multiple change

processes (Amiot, Terry, Jimmieson, & Callan, 2006). Recently, Waldman and Javidan

(2009) explored the theoretical role of leadership during M&As and identified two forms of

charismatic leadership – personalized and socialized – that they argue are associated with

different vision formation strategies, and ultimately with different integration strategies,

which determine post-merger outcomes.

In summary, theory and research indicates that the content and process of change used

in M&As are likely to influence change implementation success. In this chapter, we focus on

one change content factor (the extent of to which change is experienced as transformational)

and two change processes (change communication and participation in change) that research

suggests will influence employees’ change attitudes, and ultimately, M&A outcomes.

Change Attitudes

Researchers increasingly recognize the critical role that employees’ reactions to

change play in driving the success of organizational change efforts (DeCelles, Tesluk, &

Taxman, 2013; Rafferty, Jimmieson, & Armenakis, 2013). Indeed, Oreg et al. (2011: 462)

argued that a “main determinant of the extent to which any change can succeed is how

change recipients (italics in original) react.” While a wide array of reactions have been

studied when considering the impact of organizational change, we focus on two employee
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attitudes toward change; change readiness and resistance to change. Armenakis and his

colleagues(1993: pp. 681-682) defined change readiness as an individual’s “beliefs, attitudes,

and intentions regarding the extent to which changes are needed and the organization’s

capacity to successfully undertake those changes.” These authors suggested that readiness is

the cognitive precursor to the behaviors of either resistance to, or support for, a change

Resistance to change is one of the most studied change attitudes and has a long

history in the social sciences (Bouckenooghe, 2010). A number of authors have considered

resistance to change as a unidimensional construct (Bovey & Hede, 2001; Giangreco &

Peccei, 2005; Jansen, 2000; Peccei, Giangreco, & Sebastiano, 2011; Seo et al., 2012; Shapiro

& Kirkman, 1999; van Dijk & van Dick, 2009). In contrast, Piderit (2000) argued that

research on resistance should adopt a multidimensional view of resistance to change. Piderit

argued that resistance to change consists of a cognitive, affective, and intentional component.

Adopting this approach, Oreg (2006: 74) defined resistance to change as “a tridimensional

(negative) attitude towards change, which includes affective, behavioral, and cognitive

components.”

Hypotheses Development

In this section we develop and build the arguments for the causal pathways

hypothesized in our conceptual model. For completeness, we include hypotheses for both

well-established relationships as well as novel pathways.

Strategy implementation and M&A outcomes

We suggest that the strategy implementation decisions made in a M&A will have a

direct relationship with M&A outcomes. In particular, theory suggests that decisions about

the extent to which the units/functions of the acquired business will be integrated into the

acquirer’s existing business structure are motivated by greater cost and revenue synergies

(Pablo, 1994). There is also empirical evidence that shows an increased level of integration is
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directly positively associated with post-acquisition financial performance (Bauer & Matzler,

2014; Larsson & Finkelstein, 1999).

Hypothesis 1a: Increasing level of integration will be positively associated with M&A

organizational financial performance.

Speed of the integration refers to the amount of time from when the acquirer takes

ownership of the target until the desired level of integration has been achieved (Cording et

al., 2008). In the strategy field, research indicates that rapid integration can result in faster

realization of synergies and also less time for competitors to poach customers while the

organization is distracted by the integration (Homburg & Bucerius, 2006). Therefore, speed

of integration is expected to be positively related to M&A outcomes.

Hypothesis 1b: Faster speed of integration will be positively associated with M&A

organizational financial performance.

Strategy Implementation Decisions and Employee Perceptions of Change

Implementation

While we could not locate any prior research examining the effects of strategy

implementation decisions on employee perceptions of change implementation, there has been

limited research examining the effects of strategy implementation decisions on employee

change attitudes. Larsson and Finkelstein (1999) hypothesized, but did not find support for, a

negative relationship between degree of integration and employee resistance. They reasoned

that a higher degree of integration would increase uncertainty and stress among employees,

and would therefore increase employee resistance. One possible reason why Larsson and

Finkelstein did not find support for this hypothesis is because they omitted a mediating

variable: employee perceptions of change implementation. We propose that there will be a

relationship between strategy implementation decisions and employees’ perceptions of

change implementation. In particular, an increasing level of integration is likely to result in

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employees’ experiencing a larger magnitude of change and therefore high job-level impacts

for employees. Thus, we propose that:

Hypothesis 2a: Increasing level of integration will be associated with greater

perceived transformational change.

Several studies also have proposed, but not tested, that the speed of integration

influences M&A financial performance through employee change attitudes. For example,

Olie (1994) proposed that a slow integration minimizes conflicts between the merging

partners. Ranft and Lord (2002) proposed that a slow integration can enhance trust building

between the merging firms’ employees. Similarly, Bragado (1992) argued that a slow

integration process may be superior to a fast approach to provide a period for employees of

the two joining businesses to study and understand each other.

From a change management perspective, the speed of integration is likely to

negatively affect employee perceptions of change implementation. Some scholars have

suggested that a faster speed of integration can reduce uncertainty for employees and help to

capitalize on the early enthusiasm and momentum after the deal (Bauer & Matzler, 2014).

However, a faster speed of integration may also reduce the time available to “sell” the change

to employees via communication from organizational leaders, reduces opportunity for

meaningful participation in change processes, and is likely to decrease employees’ sense of

control over change. On balance, we expect the speed of integration to be negatively

associated with negative perceptions of change processes and positively associated with the

experience of transformational change.

Hypothesis 2b: Faster speed of integration will be negatively associated with quality

of communication and extent of participation, and positively associated with

perceived transformational change.

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Change Management Decisions and Employee Perceptions of Change

Implementation

We argue that an organization’s overarching change implementation plan will

determine the type of change procedures and processes that are used by work groups when

implementing change. As such, three decisions that are part of the overarching change

implementation plan – the sequence and order of changes, how much to involve employees in

the decision making process about changes, and how much to communicate with employees

about changes – will cascade down the organization and influence employees’ perceptions as

to whether a change is experienced as transformational – where major changes to key

organizational systems and processes are implemented or as incremental, which involves

minor shifts in more peripheral aspects of an organization’s system. In addition, we also

argue that the overarching change implementation plan will influence employees’ perceptions

regarding the way in which change is implemented in terms of the quality of change

communication provided, and the extent to which employees are provided with opportunities

to participate in change.

Hypothesis 3a: Implementing changes in high impact compared with peripheral

aspects of an organization’s systems and processes early in an integration will be

positively associated with employees’ perceptions about the extent to which change is

experienced as transformational.

Hypothesis 3b: The amount of information about changes shared with employees will

be positively associated with employees’ perceptions about the quality of

communication.

Hypothesis 3c: Increasing opportunities for employees to get involved in change

decision making will be positively associated with employees’ perceptions about the

extent of participation.
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Employee Perceptions of Change Implementation and Employee Change Attitudes

Research suggests that the change processes adopted when implementing change are

associated with employees’ responses to change (Amiot et al., 2006; Rafferty & Restubog,

2010; Schumacher et al., in press; van Dick et al., 2006). Rafferty and Restubog studied a

merger in the Philippines and focused on the smaller, lower-status merger partner. These

authors examined the influence of two measures of change communication - subjective

perceptions regarding the quality of change information provided and attendance of formal

information sessions - and employees’ subjective perceptions of the change context

(employees’ perception of their change history in an organization) on change attitudes and

voluntary employee turnover. Results indicated that the influence of change process (the

subjective quality of change communication) and context (change history) on voluntary

employee turnover was transmitted through affective commitment to change.

Amiot et al. (2006) examined a merger of two airlines, collecting data three months

and then two years after the merger had been completed. These authors identified employees’

participation in the merger process, perceived effectiveness of senior leadership during the

merger, and perceived clarity of communication about the merger as important change

process factors, which were treated as indicators of a latent measure of change process.

Results indicated that this change process factor was positively associated with self-efficacy

and negatively associated with employee stress at Time 1. In summary, based on prior

theorizing and empirical evidence, we propose that:

Hypothesis 4a: Higher perceived quality of change communication will be positively

associated with change readiness and negatively associated with resistance to

change.
 21

Hypothesis 4b: Higher levels of perceived participation in change will be positively

associated with change readiness and negatively associated with resistance to

change.

While a good deal of research has addressed the relationship between the process of

change and employee change attitudes, we were only able to identify one empirical study that

linked the content of change with change attitudes in the context of a M&A. In particular,

Bhatti et al. (in press) conducted a study with Danish local government municipalities, some

of whom were forced to merge. These authors examined an objective measure of the extent of

change occurring as a result of a merger by calculating the relative size of the original

municipality in the newly merged municipality. Bhatti et al. reported that mergers had more

negative consequences for employees in municipalities that underwent greater organizational

change in terms of sickness absence. Specifically, individuals in municipalities that

experienced a greater degree of change took 1.4 more days absence than did other employees.

We propose that:

Hypothesis 4c: As employees’ perceptions that they are experiencing

transformational change increases, change readiness will decrease and resistance to

change will increase.

Employee Change Attitudes and M&A Outcomes (employee and organizational)

Empirical research indicates that employees’ change attitudes influence a range of

employee job attitudes and behaviours. Herscovitch and Meyer (2002), for example, found

strong positive relationships between affective and normative commitment to change and

employees’ behavioural support for change. Similarly, Shin, Taylor, and Seo (2012) reported

that employees’ normative and affective commitment to change were positively related to

behavioural and creative support for change and these attitudes were negatively related to

turnover. Furthermore, additional research indicates that employee attitudes and behaviors
 22

impact on organization-level outcomes such as performance. For example, employee in-role

performance has been positively associated with organizational performance outcomes

(Kehoe & Wright, 2013). Research also shows employee attitudes, including job satisfaction

and commitment to the organization, are positively associated with a range of organizational

performance outcomes (Allen & Meyer, 1996; Judge, Thorensen, Bono, & Patton, 2001).

Overall, we suggest that when employees report high change readiness and low resistance to

change that this will translate into positive M&A outcomes as reflected in positive employee

job attitudes and behaviors, enhanced organizational performance, and post M&A financial

performance. Thus, we propose that:

Hypothesis 5a: Higher change readiness will be positively associated with post-

merger employee outcomes and ultimately with M&A financial performance.

Hypothesis 5b: Higher resistance to change will be negatively associated with post-

merger employee outcomes and ultimately with M&A financial performance.

Finally, we argue that employee change attitudes will mediate the relationships

between employee perceptions of change implementation and M&A outcomes. Thus, it is

proposed that:

Hypothesis 6a: Change readiness will mediate the relationships between employee

perceptions of change implementation and M&A employee outcomes and M&A

financial outcomes.

Hypothesis 6b: Resistance to change will mediate the relationships between employee

perceptions of change implementation and M&A employee outcomes and

organizational outcomes.

Feedback Effects

The next three hypotheses focus on the feedback effects between M&A outcomes,

employee attitudes, strategy implementation decisions, and change management decisions.

 23

We use the term “feedback effects” to refer to the effects of time-lagged values of what are

typically considered dependent variables on variables typically considered to act as

antecedents. Focusing on feedback effects highlights the temporal relationships among

constructs over time, where outcome feedback influences subsequent cognitive and affective

responses involved in decision-making (Brehmer & Dörner, 1993; Gary, Pillinger, & Wood,

2012). For example, as an M&A integration progresses, M&A outcomes – at any time t

during the integration – influence subsequent strategy implementation and change

management decisions at time t + k. Over time, changes in these decisions also influence

employee attitudes, which then influence posterior M&A outcomes. Our hypotheses about

the feedback effects involved in M&A integration, stem directly from our interview and in-

depth case-study research over the last two years (Atkinson & Gary, 2013, 2015; Gary, 2012;

Gary & Rafferty, 2014) and from our survey research (Rafferty et al., 2013; Rafferty &

Restubog, 2010). Our data indicates that managers closely monitor the M&A outcomes

continuously throughout the integration project, and adjust the implementation strategy and

change management content and processes based on whether the M&A outcomes are judged

to be below, on par with, or above targets.

A specific feedback effect that emerged from interviews we conducted as part of our

recent research is that poor M&A outcomes at time t, such as financial performance delivered

through change initiatives that are below targets, lead managers to increase the level of

integration and accelerate the speed of the integration at time t+k (Atkinson & Gary, 2012,

2013, 2015; Gary, 2012). Increasing the level of integration is an attempt to extract more

financial synergy, and accelerating the speed of the integration is an effort to deliver the

changes that are in progress faster. However, these decisions may negatively impact

employee change attitudes over time, with follow-on negative effects for posterior M&A

outcomes.
 24

Hypothesis7a: M&A Outcomes below target levels(t) will be associated with

increasing levels of integration(t+k) and increasing speed of integration(t+k), which

will be positively associated with posterior M&A organizational outcomes (e.g.,

financial performance).

Hypothesis 7b: M&A Outcomes below target levels(t) will be associated with

increasing levels of integration(t+k) and increasing the speed of integration(t+k),

which will be negatively associated with employee perceptions of change

implementation, and subsequent employee change attitudes, with follow-on negative

effects for posterior M&A outcomes.

Another specific feedback relationship that emerged from our interview data is that

poor employee attitudes at time t, such as low change readiness and high resistance to change

compared with target values, also influence managers to modify change processes by

increasing the frequency and quality of change-related communications at time t + k.

Increasing the frequency and quality of communication is an attempt to improve subsequent

employee attitudes about change and M&A employee and organizational outcomes.

However, it is important to recognize that there is a nontrivial trade-off here for managers to

balance. Increasing change-related communication frequency and quality may be associated

with increased costs such as bringing in change management consultants to help mentor team

leaders and the opportunity cost of time spent communicating versus other activities.

Hypothesis 7c: Employee attitudes below target levels(t) will be associated with

increasing frequency and quality of change-related communication(t+k), which will

be positively associated with posterior M&A employee and organizational outcomes.

A final feedback relationship that emerged from our interviews is that poor employee

outcomes at time t, such as high employee turnover and low change-related citizenship

behaviours compared with target values, over time also negatively influence other
 25

employees’ attitudes and subsequent behaviours about the change process at time t + k. These

feedbacks can create a vicious spiral where poor employee outcomes drive declining

employee attitudes, resulting in even lower employee behaviours in a downward reinforcing

process.

Hypothesis 8: Low employee and organizational outcomes(t) will be associated with

decreasing employee change attitudes(t+k), which will be negatively associated with

posterior employee outcomes and organizational financial performance in a

downward spiral.

Discussion

In this chapter, we have integrated material from the strategy implementation

literature and the change management literature. We have argued that some of the equivocal

empirical results reported from both the strategy and change literatures in relation to M&As

are likely due to the omission of important variables from research models. In particular, we

have identified employee perceptions of change implementation and a broader range of

employee change attitudes as mediators of the relationships between strategy implementation

decisions, change management decisions, and employee outcomes and M&A financial

outcomes. Importantly, our model has identified organizational-level change management

decisions as an important driver of M&A outcomes. To date, very little, if any, work in the

change literature has focused on the critical organizational-level change management

decisions that occur as a firm seeks to implement any large-scale change. We identified the

sequence in which changes to key organizational systems and processes are to be made, how

much employee participation is possible or desirable, and how much information is to

provided to employees, as examples of key organizational-level decisions that need to be

made.
 26

Due to the lack of attention directed to organizational-level change decision making,

we know very little about how senior leaders engage in this process. There are also a number

of other important questions that need to be investigated about an organization’s change

management implementation plan including: 1) what does a high quality change

implementation plan look like, 2) what measures (e.g., interviews, surveys, archival

measures) can we use to assess the quality of an organization’s change management

implementation plan, and 3) which of these potential measures (or which combination of

measures) provides the highest quality data? A number of logical measures that can be

investigated when assessing an organization’s change implementation plan include

interviewing senior managers and HR managers or change consultants regarding various

aspects of the planning process used when considering change implementation. Questions

could address whether change implementation planning is typically formal or informal, or

whether planning focuses on broad discussions or involves detailed discussions of change

management processes to be adopted at lower organizational levels. In addition, there may be

archival records, such as transcripts of meeting notes or reports, which can inform us as to the

change implementation plans adopted. We suggest using a variety of measures of the change

implementation plan is most likely to provide a rich picture of change implementation plans

at the organizational level.

One relationship that we did not hypothesize in the research model in the chapter

concerns the link between strategy implementation decisions and the organization’s overall

change implementation plan. This relationship has not been discussed in an academic setting

but this relationship is likely to exist. For example, the desired level of employee

participation may be contingent on the speed of integration (or pace of change). Overall, we

suggest that the relationship between strategic implementation decisions and the change
 27

implementation plan is likely to be a very important relationship that has not yet been

“unpacked” in an academic sense. We would encourage future research on this topic.

Consideration of the strategy implementation and change management literatures

revealed a number of key differences between these literatures. Importantly, however, we

also noted some potential overlapping constructs. In particular, it is interesting to note that the

strategy implementation literature identifies a construct called the “speed of integration”,

which appears to overlap with the pace of change construct that is discussed in the

organizational change literature. The speed of integration refers to the amount of time from

when an acquirer takes ownership of the target until the desired level of integration of

systems, structures, activities, and processes has been achieved. The pace of change construct

has been discussed as capturing how quickly changes are to be implemented in an

organization (Amis et al., 2004). The mixed findings relating to the impact of speed of

integration on M&A success mirrors the mixed findings related to the importance of the pace

of change construct in the change field. Both the strategy and change literatures would be

enhanced if researchers explicitly consider whether the “speed of integration” and the “pace

of change” constructs capture the same decision.

The research model that is proposed in this chapter is a process model that outlines

how strategy implementation decisions and change management decisions are translated into

employee and organizational-level outcomes. However, it is likely that a range of factors will

moderate the relationships outlined in our model, including the role of employees’ subjective

perceptions of their change history in an organization and management style similarity across

merging organizations. There may also be other potential moderators but we will only discuss

these two for now.

In the organizational change literature, empirical research reveals that the internal

change context of an organization influences employees’ reactions to change. Some research

 28

has explored the moderating role of change history. Devos et al. (2007) reported that trust in

executive management and history of change interacted such that in the condition of low trust

and a poor change history, low openness to change was reported. We argue that employees’

perceptions of their change history will influence the strength of relationships between

strategy implementation decisions and change management decisions and employees’

perceptions of change implementation. In particular, we argue that employees who perceive

they have a poor change history in an organization will have negative expectations about their

likelihood of carrying out tasks successfully during an organizational change (Devos et al.,

2007), and are likely to be highly cynical about change (Reichers, Wanous, & Austin, 1997;

Wanous, Reichers, & Austin, 2000). As such, we expect that employees who perceive they

have a poor change management history in an organization will respond more negatively to

strategy implementation decisions and also will respond less positively to positive change

management decisions.

Empirical research also shows that the management style similarity of two merging

organizations influences change attitudes. Larsson and Finkelstein (1999) hypothesized and

found support for a negative relationship between management style similarity and employee

resistance. Management style similarity was defined as the degree to which managers in

combining organizations emphasize risk-taking, authority, and structure. Larsson and

Finkelstein argued that when management styles are similar across merging organizations,

the level of cooperation is enhanced, perceptions about the degree of change taking place

may be cushioned, and therefore the extent of employee resistance to an acquisition may be

attenuated. Homburg and Bucerius (2006) also examined the influence of management style

similarity, arguing that this was one component of organizational culture, and found that the

relationship between speed of integration and M&A success was moderated by management

style similarity. Specifically, in explaining M&A success they found a positive interaction
 29

effect of management style similarity and speed of integration on M&A success. Similar to

Bragado (1992), we argue that the appropriate speed of integration is likely to depend on the

fit of the two merging organizations, especially on their cultural fit. Therefore, we would

expect that greater management style similarity enables faster speed of integration without

undermining change readiness and without increasing resistance to change.

Conclusion

In this chapter, we have argued that it is time to adopt a broader perspective on M&As

by acknowledging that multiple literatures have addressed this topic. We argue there is a need

to start integrating these literatures and to build more theoretically rich models that better

explain M&A success. As a first step, we have sought to integrate the strategy

implementation literature and the change management literatures. By doing so, we have

identified a number of novel hypotheses and also have emphasized the importance of

feedback processes that occur during complex M&A processes.

 30

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Figure 1. Conceptual Framework