Bank of America and MBNA acquisition was a mesh
Discuss about the Organisational Acquisition and Cultural Synthesis.
The acquisition and merger model is used by business organisations to expand their markets and generate more revenue. Apparently, the success of the merger or takeover is dependent more on the mother companies financial and strategic might. However, in reality, the subsidiaries play equally important role in ensures success and profitability of the takeover. The paper would visit this mutual dependence between mother companies and subsidiaries through the lens of Bank of America and its erstwhile subsidiary, MBNA (bankofamerica.com 2018). The paper would take into account theories like economies of scale and strategic human resource management besides the main theory acquisition and mergers.v
The acquisition of MBNA by Bank of America was a cultural mesh and not a cultural clash. Cultural mesh as per Abdulai and Ibrahim (2016) refers to the situation when one organisation acquires another organisation. The holding organisation accepts some of the cultural aspects of the acquired subsidiary company while enforcing some cultural aspects on its employees. The management of the mother company motivates the employees of the subsidiary company to inculcate the organisational culture of the former instead of outright forcing them (Robbins and Millett 2016).
Miller (2016) refers the cultural clash in terms of organisational culture as confrontation and conflict between the management of the mother company and subsidiary company when the former enforces its own culture upon the employees of the latter, thus creating a conflicting situation. Ovseiko et al.(2015) point out that cultural clashes are prevalent in situations when multinational companies cross borders to acquire subsidiary companies to expand their market. Again, cultural conflicts are also common when business organisations acquire firms from other industries. The organisational culture prevailing in business organisations are often derived from the cultures of their home countries. When such organisations enter foreign countries, especially the ones which are culturally diverse, they often try to enforce their culture upon the employees of the subsidiaries. Moreover, the employees of the mother company are often hostile towards employees of the subsidiary company and that creates a sense of deprivation among the latter group of employees. This gives rise to situations of organisational clash between the subsidiary and the holding company which ultimately lead to failure of the acquisition (Jia, Rutherford and Lamming 2016).
As far as the acquisition of MBNA by Bank of America is concerned, it was a cultural mesh and not a cultural clash. One can point that Bank of America is a leading American multinational bank based in the United States of America. MBNA is a financial company based in the United States of America. Hence, both the companies are based in the United States and shared common national culture. This cultural similarity between the two organisations enabled the employees of the two companies to accept each other as co-workers (Ahern, Daminelli and Fracassi 2015).
Importance of culture in the success of mergers/acquisitions
Ahammad et al. (2016) mentions that multinational companies acquire companies across industries to expand their product line and market presence. Bank of America is an American bank whereas MBNA is a credit card offering company. One can infer that the products and business of the two companies are not totally same. Their employee policies and organisational culture were also not totally same. However, the employees of the two business giants accepted each other’s cultures to form a hybrid culture. For example, the dress code of Bank of America was normally business casuals which enabled the bank staff to relate to diverse customer base. The normal dress code of MBNA is formals which in turn allow the staff of credit card offering company to relate to its high net worth income clients (Zheng et al. 2016). The management of Bank of America allowed the employees of MBNA retain their dress code of formal wear but they could also follow the business casual dress code. The American international bank however curtailed salaries of MBNA employees and forced them to accept the salary parameters of Bank of America.v
Culture plays a very important role in case of mergers and acquisitions. As per theory of globalisation, business companies enter different countries to expand their business and boost their revenue generation. The multinational business organisations in their host countries establish subsidiaries or take over exiting firms. This allows them to get access to the human resources of their subsidiaries as well. Jackson, Schuler and Jiang (2014) point out that as per strategic human resource management, the employees of organisations play strategic role in executing the plans formed by the management. As per Baumers et al. (2016), the multinational companies in order to achieve economies of scale, employ human resources in their host countries as well. As per the economies of scale theory, the multinational business organisations adopt this human resource strategy to reduce their human resource expenditure. This strategy brings the employees of the mother companies in contact with the employees of the subsidiary company. The employees of the mother company and the subsidiary company often fail to collaborate owing to the cultural differences between the two countries (Schraeder and Self 2003). The cultural differences play significant roles when two countries have bitter relationships in the past. The employees of the mother company and the subsidiary company owing to the bitter cultural history often end up displaying abusive and indifferent attitudes. This results in conflict between the two groups of employees which ultimately starts impacting the smooth operation in the company. This lack of collaboration starts impacting the productivity of the company as a whole. Khazanchi and Arora (2016) point out that mergers and acquisitions attract immense legal and other expenditure from the side of the mother company. One can clearly infer from this fact that the loss of productivity due to cultural conflict between the two groups of employees causes immense loss to the mother company. The mother company is often compelled to close the subsidiaries in this cases to reduce further losses (mbna.co.uk 2018).v
Smooth transition and collaboration between mother company and subsidiary
The mother company and the subsidiary companies have to collaborate to ensure smooth transition and amalgamation of their organisational cultures. Angwin et al. (2016) mention that conflict between employees of mother companies and subsidiaries stemming from differences in cultures lead to failure of takeover. The mother companies which are financial and strategically stronger than their subsidiaries often enforce their own organisational cultures on the employees of the latter. The mother companies often compel the employees of their subsidiaries undergo abrupt organisational changes (Jenter and Lewellen 2015). This creates stress on the employees of the subsidiary companies which hampers their motivation. The terms imposed by the management of the mother companies like new reporting managers and new compensation policies put immense mental stress on the employees of the subsidiary companies. They do not get time to acclimatise with the organisational culture and environment of the mother company (Larkin and Larkin 1996). The outcome of this imposition of organisational culture on employees of subsidiary companies ultimately leads to high employee turnover. This adds to the operating costs of the mother company in the new market. Loss of experienced employees results in the faulty decision making which has long term effect on the business (Brueller, Carmeli and Markman 2018). Thus, the lack of cooperation and conflict between the employees of the mother company and subsidiaries are capable of causing immense loss to the former. Hajro (2015) mentions that collaboration between the employees of mother company and subsidiary companies play a very significant role in success of the acquisition. The case study mentions that Bank of America instead of imposing its organisational culture on the employees of MBNA, accepted their organisational culture, at least partially. For example, the management of Bank of America reduced their salary but accepted their dress code. The outcome of this change was that though some of the employees of MBNA resigned, most of the employees remained (Chmielecki and Ukasz 2018). This proved that mutual acceptance of organisational culture between mother company and subsidiary can lead to smooth transition of operations from the subsidiary to the mother company’s control. Moreover, Bank of America was able to use the product of MBNA, credit cards to expand its own product line. This enabled the bank to serve more customers and generate more revenue. This analysis shows that mutual acceptance of organisational cultures between mother company and subsidiary is important for success of mergers (mbna.co.uk 2018).v
Conclusion:
One can conclude from the discussion that multinational companies should adopt acquisition and mergers strategies more effectively to expand their business. They should not enforce their organisational culture on the employees of their subsidiaries. They instead of opting of cultural clash, opt for cultural mesh to infuse their culture into their newly acquired employees. This would boost smooth productivity and higher revenue generation in the global market.v
References:
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