Case 1

Mergers and Acquisitions at Cisco Systems

In the past, the decision criteria for mergers and acquisitions were typically based on
considerations such as the strategic fit of the merged organizations, financial criteria, and
operational criteria. Mergers and acquisitions were often conducted without much regard
for the human resource issues that would be faced when the organizations were joined
[1]. As a result, several undesirable effects on the organizations human resources
commonly occurred. Nonetheless, competitive conditions favour mergers and
acquisitions and they remain a frequent occurrence.
Examples of mergers among some of the largest companies include the following:
Honeywell and Allied Signal, British Petroleum and Amoco, Exxon and Mobil,
Lockheed and Martin, Boeing and McDonnell Douglas, SBC and Pacific Telesis,
America Online and Time Warner, Burlington Northern and Santa Fe, Union Pacific and
Southern Pacific, Daimler-Benz and Chrysler, Ford and Volvo, and Bank of America and
Nations Bank.
Layoffs often accompany mergers or acquisitions, particularly if the two organizations
are from the same industry. In addition to layoffs related to redundancies, top managers
of acquiring firms may terminate some competent employees because they do not fit in
with the new culture of the merged organization or because their loyalty to the new
management may be suspect. The desire for a good fit with the cultural objectives of the
new organization and loyalty are understandable. However, the depletion of the stock of
human resources deserves serious consideration, just as with physical resources.
Unfortunately, the way that mergers and acquisitions have been carried out has often
conveyed a lack of concern for human resources. A sense of this disregard is revealed in
the following observation:
Post combination integration strategies vary from such love and marriage
tactics in truly collaborative mergers to much more hostile rape and pillage
strategies in raids and financial takeovers. Yet, as a cursory scan of virtually any
newspaper or popular business magazine readily reveals, the simple fact is that
the latter are much more common than the former.[2]
The cumulative effects of these developments often cause employee morale and loyalty to
decline, and feelings of
betrayal may develop.[3] Nonetheless, such adverse
consequences are not inevitable. A few companies, such as Cisco Systems, which has
made over 50 acquisitions, are very adept in handling the human resource issues
associated with these actions. An example of one of Ciscos practices is illustrative. At
Cisco Systems, no one from an acquired firm is laid of without the personal approval of
Ciscos CEO as well as the CEO of the firm that was acquired.[4]
QUESTIONS
1. Investigate the approach that Cisco Systems has used in its many successful
acquisitions. What are some of the human resource practices that have made its
acquisitions successful?
2. If human resources are a major source of competitive advantage and the key determinant
of an organizations ability to pursue a given strategy, why have the human resource

aspects of mergers and acquisitions been ignored or handled poorly in so many

instances in the past?
3. Consider someone who has been through a merger or acquisition. Find out how they felt
as employees. Determine how they and their co-workers were affected. Ask about the
effects on productivity, loyalty, and morale. Find out what human resource practices
were used and obtain their evaluations of what was helpful or harmful.
REFERENCES
1. Buono, Anthony F., and James L. Bowditch. The Human Side of Mergers and
Acquisitions: Managing Collisions Between People, Cultures, and Organizations. San
Francisco: Jossey-Bass Publishers, 1989.
2. Buono and Bowditch. The Human Side of Mergers and Acquisitions, p. 263.
3. Buono and Bowditch. The Human Side of Mergers and Acquisitions.
4. Branch, Shelly. The 100 Best Companies to Work For in America, Fortune (January
11, 1999): 11844; Thurm, Scott. Joining the Fold: Under Ciscos System, Mergers
Usually Work; That Defies the Odds, Wall Street Journal (March 1, 2000): A1.

Case 2
Merging Incompatible Organizational Cultures
As the number of mergers and acquisitions has continued to rise, it has become evident
that merging two different organizational cultures is not easy. Also, many anticipated
benefits of the mergers are not realized because of different organizational and human
resource cultures. According to one national estimate, 70% of all mergers and acquisitions
do not meet expectations, and just 15% of all combinations achieve their stated financial
objectives.
One example from the health-care industry illustrates the problems. Two large homehealth-care organizations, both headquartered in southern California, had been fierce
competitors. Homedco and Abbey Healthcare Group decided that rather than continuing to
compete, they could strengthen their market positions by merging to create one large firm,
Apria Healthcare Group. Together, they planned to expand their home health services
nationwide as the effects of managed care spread. Yet three years later the stock value of
Apria had declined by 25%, and earnings fell. How far Apria declined was soon evident;
when efforts began to find another company to take over the firm, few buyers were
interested. What happened was primarily due to operational problems caused by the
merger. Those issues had not been resolved because of internal conflict between the exHomedco and Abbey Healthcare executives and employees. Ultimately, the Board of
Directors, which was evenly split, accepted the need to remove Timothy Aitken, former
CEO of Abbey Healthcare, and have Jeremy Jones from Homedco as CEO.
It was obvious from the beginning that the organizational cultures were very different.
Whereas Homedco had a more formalized structure with more centralized decision
making, Abbey Healthcare had very decentralized decision making, and branch managers
had significant authority. Also, merging computer and billing systems by using the Abbey
Healthcare system meant that employees from Homedco had to be trained, which did not
happen fast enough. As a result, numerous billing errors and the resulting complaints and
phone calls from unhappy customers overwhelmed Apria customer service departments.

To save costs and eliminate duplication of jobs, about 14% of the employees in the
combined company lost jobs. But the greatest number of those cut were former Abbey
employees. For those remaining, it appeared that most Homedco managers were
notaffected as much as the Abbey Healthcare managers. For instance, only 6 of the 21
regional managers were formerly with Abbey Healthcare, which caused most of the bestperforming Abbey sales representatives to quit. Even changing some basic HR policies
caused problems. For example, when Homedco HR policies were extended into Abbey
offices, a new dress code and time-recording procedures irritated many former Abbey
workers. A significant number of them left in the first year. The level of conflict was so
severe that employees from one firm referred to those from the other company as idiots
and refused to return phone calls from employees with the other firm. Finally, both Aitken
and Jones left the firm, and a new executive team has been struggling to rebuild Apria.
Instead of being a healthy merger, it turned into the merger from hell.
Unfortunately, this situation is not unusual; similar conflicting cultures have diminished
the effectiveness of mergers by firms in other industries as well. One instance is a merger
of two financial institutions, Society Corporation and Key Corporation (KeyCorp). Since
the merger, the combined firm has grown only half as fast as other banks its size and has
cut 5,000 employees. In this case, as well as the Apria one, it is evident that human
resource issues and organizational culture incompatibilities can destroy the value of
mergers that appear to be logical from a broad business strategy perspective.
Questions
1. Describe how analyses of human resource issues should have been done prior to the
Apria merger.
2. Given the problems both KeyCorp and Apria have, what actions could be taken to begin
creating better organizational cultures?