hrm article online
TRANSCRIPT
Electronic copy available at: http://ssrn.com/abstract=1804871
Organizational Change and Performance 1
Running Head: ORGANIZATIONAL CHANGE AND PERFORMANCE
Organizational Change and Performance: The Moderating Role of Human Resource
Management Centrality*
Manuela Faia Correia
Lusiada University
Lisbon, Portugal
Rita Campos e Cunha
Nova School of Business and Economics
Lisbon, Portugal
Marc Scholten
ISPA University Institute
Lisbon, Portugal
*The authors thank Chris Brewster and Ricardo Rodrigues for their comments on earlier versions of this paper.
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Electronic copy available at: http://ssrn.com/abstract=1804871
Organizational Change and Performance 2
Abstract
In this study, we examine how the effects of mergers and acquisitions on organizational
performance depend on human resource management (HRM) centrality. HRM centrality is the
status of HRM in the organization. In an analysis of the data from the 2005 Cranet survey,
overall results showed that i) organizational change stemming from mergers and acquisitions
increased HRM centrality, ii) organizational change and HRM centrality increased
organizational performance and, most importantly, iii) the positive effect of organizational
change on organizational performance increased with HRM centrality. More detailed analyses
revealed that the moderating role of HRM centrality itself depended on the type of
organizational change, the type of responsibility for HRM practices and HRM strategic
involvement, and the type of organizational performance indicators. The study offers new
insights about the critical role of HRM centrality, and suggests that mergers and acquisitions
should be studied as differentiated change processes.
Key words: Mergers, Acquisitions, Takeovers, Human Resource Management Centrality,
Organizational Performance.
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Organizational Change and Performance 3
Organizational Change and Performance: The Moderating Role of Human Resource
Management Centrality
Introduction
Mergers and acquisitions are popular forms of organizational change. Despite their popularity,
however, they appear to yield mixed results (Agrawal & Jaffe, 2003; Cartwright &
Schoenberg, 2006; King et al., 2004). This has been attributed to a variety of factors,
including culture gaps and clashes, and incompatibility between, and loss of, key people
(Bianco, 2000; Fairlamb, 2000). Executives who have been through a process of change now
recognize that, in today’s economy, the management of the human side of change is the real
key to maximizing the value of a deal (Gunther, 2001; Kay & Shelton, 2000) and expect a
proactive management of the human integration process to lead to a situation where both
organizations win (Cartwright & Cooper, 1996; Kanter, 1994).
Although it is believed that HRM can contribute to the success of mergers and acquisitions,
there is a surprising lack of evidence to corroborate this view. Some evidence comes from
Cunha (1997), who studied privatizations, a particular case of acquisitions. Her results show
that, in privatized companies, major changes in HRM are made, not only to promote strategic
and cultural alignment, but also to increase employees’ job satisfaction and commitment, thus
emphasizing the role of HRM.
In this study, we examine how HRM centrality affects the relation between organizational
change and performance. HRM centrality is the status of HR in the organization, i.e., the
perceived power of the HR department as an agent of change, through the existence of
formalized, or written, strategies, strategic involvement in the change process, and the
responsibility for HR practices.
The components of our analysis are organizational change, i.e., ownership change, HRM
centrality, and organizational performance. With this work, we contribute to the field of HRM
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Organizational Change and Performance 4
by examining the role of HRM centrality in moderating the relation between organizational
change and organizational performance, and by exploring how the moderating effect itself
depends on the type of organizational change involved.
The paper is structured as follows: First, the literature on the relationships between HRM,
organizational change and organizational performance is discussed. The research model and
hypotheses are presented. Next, the research method is described, followed by the
presentation of the statistical analyses and results. Finally, the findings and implications are
discussed.
Theoretical Background and Hypotheses
Organizational change and performance
In this article we distinguish three types of change: Acquisitions, i.e., buying another
organization, being taken over, i.e., being bought by another organization (henceforth,
‘takeover’), and mergers, i.e., fusing two organizations (Schuler & Jackson, 2001). While in a
merger two companies come together and create a new entity, in an acquisition, one company
buys another and manages the acquired company in a way consistent with their strategic aims.
Although acquisitions and takeovers are two sides of the same coin, i.e., an organization
gaining control or ownership of another organization, we distinguish in our study between the
organizations that acquired another organization (acquisition) and the organizations that had
been acquired by another organization (takeover).
One common pattern in processes of mergers and acquisitions is the organizational change
arising from the ownership change, and the goal of achieving substantial improvements in
business performance, either to achieve economies of scale, to expand their market and
internationalize, to spread their risk, and to improve efficiency and flexibility (Kumar, 2009;
Schuler & Jackson, 2001).
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Organizational Change and Performance 5
Hence, our first hypothesis:
H1-Organizational change stemming from mergers, acquisitions, or takeovers increases
organizational performance.
This change is large in scale and involves all stakeholders, especially managers and
employees, by affecting corporate strategy, operations, and human resource policies. A few of
the negative consequences of organizational change include the fear of job cuts with the
corresponding ‘survivor syndrome’, cultural clash, and poor alignment of structures, systems,
and incentives, resulting in stress reactions and crisis management, which has been named
“merger syndrome” (Marks & Mirvis, 1998). Given the impact on the human factor, it is only
natural that HRM has a central role in improving the integration process in each of the three
types of change.
Organizational change and performance: The moderating role of human resource
management centrality
Strategic human resources management (SHRM) literature focuses on how HRM practices
affect organization-wide outcomes (Ferris et al., 1999). The increasing emphasis on the
contribution of SHRM has been accompanied by a growing interest in relating HRM activities
to competitive performance (see Lengnick-Hall et al., 2009, for an extensive review).
Overall, the link between HRM and organizational performance is well-documented, in terms
of market value (Huselid & Becker, 2000) and return on assets (Combs et al., 2006), or even
directly (Khatri, 2000) or indirectly (Harris & Ogbonna, 2001). However, as Guest (2011)
argues, studies to date do not reveal how this association works, nor the direction of the
relationship.
In the specific case of mergers and acquisitions (M&As), there is a considerable body of
evidence that organizational performance fails to live up to expectations, suggesting that
HRM and employment issues are poorly handled (Buono & Bowditch, 1989; Cartwright &
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Organizational Change and Performance 6
Cooper, 1996; Reeves & Edwards, 2009) and a potential factor in failures of mergers and
acquisitions (e.g., DeNisi & Shin, 2004; Stahl, Mendenhall, & Weber, 2005; Weber & Drori,
2008). Not many studies focus on how the consequences of mergers and acquisitions are
related to HR roles and practices, but Cunha (1997) studied privatizations, and analyzed the
internal change process in terms of corporate culture and HRM practices. The results of her
study showed that following privatizations, companies implemented different HRM practices,
namely in terms of downsizing and selective recruitment, appraisal and incentives,
communication with employees and unions, as well as training and development practices.
These changes were aimed not only at promoting the strategic and cultural organizational
alignment, but also at reducing individual employee stress levels and increasing their job
satisfaction and organizational commitment (Cunha & Cooper, 2002).
Takeovers, mergers, and acquisitions are major organizational events that require HRM
departments to play a more strategic role in their organizations (Björkman & Söderberg,
2003), when different management styles and reward and evaluation systems need to be
reconciled (Datta, 1991). In addition, HRM needs to assure a vertical fit between corporate
strategy and HRM policies and practices as well as a horizontal fit among HRM practices
(Wright & Snell, 1998). Vertical and horizontal fit are needed to provide the link between
strategy and skills and the link between strategy and behaviors. Furthermore, what roles are
played by HRM specialists and Line Managers (LMs) and what their influence is must be
defined (Kirkpatrick et al., 1992; Mesner & Sterbe, 2005), since line managers implement
some of the HRM policies and practices on a daily basis.
A senior HRM officer as member of the board of directors raises awareness of the human
factor at the strategic top management team level. Companies with explicit mission
statements, business strategies, and HRM strategies can be expected to develop adequate
HRM strategies that address the issues essential to strategic implementation (Schuler &
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Organizational Change and Performance 7
Jackson, 2001) and enhance organizational performance (Lyles et al., 1993; Nikandrou &
Papalexandris, 2007; Pearce et al., 1987).
This literature leads us to propose that HRM centrality will increase as a result of mergers and
acquisitions. Hence our second hypothesis:
H2-Organizational change stemming from mergers, acquisitions, or takeovers increases HRM
centrality.
According to Danya, Guedrib, and Hatta (2008), integration of strategic decision making with
HRM strengthens the link between HRM and organizational performance. They go further by
suggesting that performance is better when influence over HRM issues is shared by HRM
specialists and LMs, except when there are major organizational changes, in which case the
HRM specialists’ role should predominate (Danya et al., 2008) in order to overcome the
potential lack of interest, time and competences of LMs in HRM issues, themselves
overloaded by the extra responsibilities demanded by the change process. Once again research
revealed mixed results. Using the Cranet data, Nikandrou and Papalexandris (2007) found that
companies with successful mergers and acquisitions had increased HRM involvement in
strategic decisions, formalized HRM practices, built organizational capability through training
and development activities, devolved HR activities to LMs, and emphasized internal labor
market opportunities. However, Björkman and Söderberg’s (2003) study of Nordea bank’s
merger revealed typical problems in organizing and managing HRM issues and illustrated
how HRM specialists are easily given non-strategic roles in these processes.
The impact of HRM on the relationship between organizational change and organizational
performance can thus be expected to depend on the specific areas in which the HRM
department is active: training and development, recruitment and selection, and performance
appraisal and compensation (Delery & Doty, 1996).
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Organizational Change and Performance 8
Based on the SHRM literature, however, HRM must be strategically coordinated in order to
play its positive role (Combs et al., 2006; Delery, 1998; MacDuffie, 1995) and emphasis
needs to be placed on the implementation process, so that firms create strong HRM Systems
(Bowen & Ostroff, 2004). This, in turn, requires that strategy should be formalized, and that
the primary responsibility for various HRM areas remains with HRM specialists, who should
be visibly involved in the design and implementation of HRM policies and practices from the
outset, i.e., HRM centrality should be high.
In sum, we propose that HRM centrality is an important determinant not only of
organizational performance but also of whether organizational change improves
organizational performance. These relationships are reflected in our final two hypotheses:
H3-A greater HRM centrality increases organizational performance.
H4-A greater HRM centrality increases the positive effect of organizational change on
organizational performance.
Research Model
Most studies that have examined the role of HRM in organizational change have used case
studies or domestic surveys (e.g., Antila, 2006; Björkman & Söderberg, 2003; Clement &
Greenspan, 2000), treated mergers and acquisitions indiscriminately, used few indicators of
organizational performance, or did not explore the areas in which HRM should play a
strategic role in order to increase the success of mergers and acquisitions (for exceptions, see
Danya et al., 2008; Nikandrou & Papalexandris, 2007). We overcome those limitations with
our research model, presented in Figure 1.
<Insert Figure 1 about here>
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Organizational Change and Performance 9
Methodology
Survey and sample
This study draws on the 2005 Cranet survey containing data on HR policies and practices in
private and public sector organizations in 32 countries, mostly European. The survey asks the
most senior HRM professional a range of questions on company policies and practices in
human resource management, covering the personnel function, staffing, employee
development, compensation and benefits, employee’s relations and communication, and
organizational details (Brewster et al., 2004). The sample comprises a total of 7914 usable
questionnaires, gathered over a period of 18 months, from late 2003 to mid-2005. Tables 1
and 2 present a description of the sample. Table 1 presents the distribution of the sample by
their reported histories of change and Table 2 provides the distribution of the companies that
experienced change by number of employees and by industrial sector.
<Insert Tables 1 and 2 about here>
Measures
HRM centrality
The concept of HRM centrality has three interrelated, but distinct, variables: (1)
Formalization, (2) HRM strategic involvement in business strategy, and (3) Responsibility for
several HRM practices.
We distinguished written formalization (2), unwritten formalization (1), and no formalization
(0) in four areas (mission statement, business strategy, personnel/HRM strategy, and corporate
values statement), yielding a variable ranging from 0 (no formalization whatsoever) to 8
(written formalization in all four areas).
Concerning HRM strategic involvement, we distinguished four levels: HRM strategic
involvement from the outset (3), HRM strategic involvement through consultation (2), HRM
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Organizational Change and Performance 10
strategic involvement on implementation (1), and HRM not consulted (0). HRM strategic
involvement was treated as an ordinal variable.
When it served as independent variable, HRM strategic involvement was decomposed into
three orthogonal, and hierarchical, contrasts. One contrast, HRM strategic involvement from
the outset, compared ‘from the outset’ (3) with ‘through consultation,’ ‘on implementation,’
and ‘not consulted’ (-1). The second contrast, HRM strategic involvement through
consultation, ignored ‘from the outset’ (0), and compared ‘through consultation’ (2) with ‘on
implementation’ and ‘not consulted’ (-1). The third contrast, HRM strategic involvement on
implementation, ignored ‘from the outset’ and ‘through consultation’ (0), and compared ‘on
implementation’ (1) with ‘not consulted’ (-1).
Responsibility for HRM practices distinguishes five areas: Pay and benefits, recruitment and
selection, training and development, industrial relations, and workforce expansion/reduction.
We considered whether the HRM Department - HRMD (1) or Line Manager - LM (0) is
ultimately responsible for a given area.
Organizational performance.
Both objective and subjective indicators of organizational performance have been used in past
empirical research (Paauwe, 2004, 2009), and there is a correlation between the two types of
indicators (Pearce et al., 1987). Our study used multiple indicators of organizational
performance: Service quality performance, level of productivity, profitability, and rate of
innovation. We used subjective indicators for the same reasons as Nikandrou and
Papalexandris (2007), i.e., difficulty in finding common indicators of performance across
sectors, the validity of subjective perceptions of performance as a basis of managerial action
(Guest et al., 2003) and the potential biases of objective indicators in cross-national studies,
because of differences in long-term and short-term orientations, and differences in fiscal
policies and tax systems.
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These four indicators were measured on a three-point benchmarking scale: In the top 10% (3),
in the upper half (2), or in the lower half (1). All indicators were treated as ordinal variables.
Control variable
We controlled for the extraneous variance introduced by industry sector, by dividing the
companies into three sector groups: Primary, secondary, and tertiary (Table 2). Primary sector
includes agriculture, forestry, hunting and fishing, secondary sector includes energy and
water, chemical products, metal manufacturing, other manufacturing and building. The
tertiary sector includes retail and distribution, transport and communication, financial
services, personal, social and health services, education, public administration and other
services.
Results
Overall analysis: Organizational change, HRM centrality, and organizational performance
To permit a single test of our hypotheses, we aggregated all dependent variables in Figure 1
into the two main ones. HRM centrality was coded in two stages. The four areas of
formalization were combined into one variable of formalization, and the five areas of HRM
responsibility were combined into one variable of HRM responsibility. A factor analysis was
then performed on the three variables constituting HRM centrality: Formalization, HRM
strategic involvement, and HRM responsibility. The first factor, on which all three variables
loaded positively, accounted for 45.6% of the variance, and this factor was used as our overall
measure of HRM centrality. Finally, a factor analysis was performed on the four variables
constituting organizational performance. The first factor, on which all four variables loaded
positively, accounted for 58.7% of the variance, and this factor was used as our overall
measure of organizational performance.
Organizational change, the independent variable, was coded 1 when the organization had gone
through at least one change and 0 otherwise. Industrial sector, the control variable, was
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Organizational Change and Performance 12
decomposed into two orthogonal contrasts, one contrasting the primary sector with the
secondary and tertiary ones, and the other contrasting the secondary sector with the tertiary
one.
All of the above variables, except for organizational change, had a mean equal to 0. Variables
that are centered around their means are convenient for investigating moderating effects in
multiple regression, because they reduce multicollinearity between the independent variables.
We therefore centered organizational change as well.
We conducted four regression analyses. In the first analysis, we regressed HRM centrality on
both organizational change and industrial sector. Thus, the effect of one variable is evaluated
while controlling for the other variable. In support of hypothesis 2, organizational change
increased HRM centrality, t(5368) = 2.88, p = .00. HRM centrality was greater in the
secondary and tertiary sector than in the primary sector, t(5368) = 3.03, p = .00, and greater in
the tertiary sector than in the secondary sector, t(5368) = 5.28, p = .00.
In the second regression analysis, we entered the interaction terms between organizational
change and industrial sector into the equation. The positive impact of organizational change
on HRM centrality was less pronounced in the tertiary sector than in the secondary sector,
t(5366) = 3.85, p = .00. This may indicate a ceiling effect: In the tertiary sector, where HRM
centrality was already greater, there was less room for an even greater HRM centrality.
In the third analysis, we regressed organizational performance on organizational change,
HRM centrality, and industrial sector. In support of hypothesis 1, organizational change
increased organizational performance, t(3706) = 2.09, p = .04, and, in support of hypothesis 3,
so did HRM centrality t(3706) = 2.77, p = .01. Organizational performance was better in the
secondary sector than in the tertiary sector, t(3706) = 2.68, p = .01.
In the fourth and final analysis, we entered the interaction terms between organizational
change, HRM centrality, and industrial sector into the equation. In support of hypothesis 4,
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Organizational Change and Performance 13
the positive impact of organizational change on organizational performance was more
pronounced with greater HRM centrality, t(3699) = 2.59, p = .01. In addition, the positive
impact of organizational change on organizational performance was more pronounced in the
primary sector than in the secondary and tertiary sector, t(3699) = 2.01, p = .04, where
economies of scale and scope are more likely to be created.
In sum, the analysis on the three main variables supported the hypotheses of our study. We
next report a more detailed analysis of the individual variables involved.
Detailed analysis: Organizational change and HRM centrality
We conducted a series of regression analyses to examine the impact of organizational change
on HRM centrality. In each analysis, the occurrence of mergers, acquisitions, and takeovers
served as independent variables.
Formalization. This was the dependent variable in a linear regression. Formalization
increased with acquisitions, t(6756) = 4.80, p = .00, and mergers, t(6756) = 4.32, p = .00. It
also increased with takeovers, but this effect was not reliable, t(6756) = 1.30, p = .19. Overall,
formalization increased with organizational change
HR strategic involvement. This was the dependent variable in an ordinal multinomial LOGIT
regression. HRM strategic involvement increased with acquisitions and decreased with
takeovers, but these effects were not significant, χ2(1) = 2.51, p = .11, and χ2(1) = 2.65, p =
.10, respectively. HRM strategic involvement was not affected by mergers, χ2(1) = 0.15, p =
.69.
Responsibility for HRM practices. This was the dependent variable in five binomial LOGIT
regressions, corresponding to the five areas of responsibility. Responsibility for pay and
benefits shifted from LM to HRMD in the presence of acquisitions, χ2(1) = 4.79, p = .03.
Responsibility for recruitment and selection shifted from LM to HRMD in the presence of
acquisitions, χ2(1) = 3.81, p = .05, and takeovers, χ2(1) = 3.86, p = .05. Responsibility for
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Organizational Change and Performance 14
training and development shifted from LM to HRMD in the presence of acquisitions, χ2(1) =
13.36, p = .00. Responsibility for industrial relations shifted from LM to HRMD in the
presence of acquisitions, χ2(1) = 37.42, p = .00. The same shift of responsibility occurred in
the presence of mergers and takeovers, but these effects were not as reliable, χ2(1) = 3.27, p =
.07, and χ2(1) = 3.25, p = .07, respectively. HRMD responsibility for workforce
expansion/reduction was not affected by organizational change, χ2(3) = 0.25, p = .97. Overall,
responsibilities shifted from LM to HRMD in the presence of acquisitions.
Detailed analysis: Organizational change, HRM centrality, and organizational performance
For each indicator of organizational performance, several ordinal multinomial LOGIT
regressions were conducted: One excluding the interactions between HRM centrality and
organizational change, which yielded the main effects on the independent variables, and
others including the interactions between HRM centrality and organizational change, which
yielded the simple main effects of the independent variables (in addition to the interactions
between them).
Service quality. Acquisitions had a positive effect on service quality performance, χ2(1) =
33.10, p = .00, and so did formalization, χ2(1) = 30.48, p = .00. However, HRM strategic
involvement through consultation had a negative effect on service quality performance, χ2(1)
= 22.45, p = .00. Also, service quality performance was better when HRMD was responsible
for recruitment and selection, χ2(1) = 10.98, p = .00, and workforce expansion/ reduction,
χ2(1) = 4.41, p = .04, and when LM was responsible for pay and benefits, χ2(1) = 8.17, p =
.00, and industrial relations, χ2(1) = 4.30, p = .04.
The positive effect of acquisitions on service quality performance was greater when LM was
responsible for pay and benefits than when HRMD was responsible for it, χ2(1) = 4.12, p =
.04 (see the top left panel of Figure 3). Also, the positive effect of acquisitions on service
quality performance was greater when HRMD was responsible for workforce expansion/
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Organizational Change and Performance 15
reduction than when LM was responsible for it, χ2(1) = 4.55, p = .03 (see the top right panel
of Figure 2).
<Insert Figure 2 about here>
Mergers and takeovers had no overall effect on service quality. In fact, sometimes the effect
was beneficial and sometimes detrimental, depending on HRM centrality. Mergers had a
positive effect on service quality when HRMD was responsible for training and development,
but a (less pronounced) negative effect when LM was responsible for it, χ2(1) = 4.68, p = .03
(see the bottom left panel of Figure 3). Also, takeovers had a positive effect on service quality
when HRM was strategically involved through consultation, but a (slightly more pronounced)
negative effect when it was involved on implementation or not at all, χ2(1) = 4.10, p = .04 (see
the bottom right panel of Figure 3).
Level of productivity. Acquisitions had a positive effect on productivity, χ2(1) = 10.36, p =
.00, and so did formalization, χ2(1) = 37.90, p = .00. HRM strategic involvement from the
outset also had a positive effect on productivity, χ2(1) = 5.21, p = .02. Productivity was higher
when HRM was strategically involved from the outset than when it was involved only through
consultation, on implementation, or not at all. However, HRM strategic involvement through
consultation had a negative effect on productivity, χ2(1) = 25.56, p = .00. Productivity was
lower when HRM was strategically involved through consultation than when it was involved
only on implementation or not at all. Also, productivity was higher when HRMD was
responsible for workforce expansion/reduction, χ2(1) = 3.72, p = .05, and when LM was
responsible for pay and benefits, χ2(1) = 7.08, p = .01, and industrial relations, χ2(1) = 6.30, p
= .01.
The positive effect of acquisitions on productivity was greater when HRMD was responsible
for workforce expansion/reduction than when LM was responsible for it, χ2(1) = 4.20, p = .04
(see the left panel of Figure 4). Mergers had opposite effects on productivity, depending on
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Organizational Change and Performance 16
HRM strategic involvement through consultation, χ2(1) = 5.89, p = .02. They had a positive
effect when HRM was strategically involved on implementation or not at all, but a (less
pronounced) negative effect when HRM was involved through consultation (see the right
panel of Figure 3).
<Insert Figure 3 about here>
Profitability. Acquisitions had a positive effect on profitability, χ2(1) = 32.81, p = .00, and so
did formalization, χ2(1) = 34.21, p = .00. However, HR strategic involvement through
consultation had a negative effect on profitability, χ2(1) = 6.03, p = .01. Profitability was
lower when HR was strategically involved through consultation than when it was involved
only on implementation or not at all. HR strategic involvement through consultation also
impaired any positive effect that mergers had on profitability, χ2(1) = 4.36, p = .04.
Rate of innovation. Acquisitions had a positive effect on rate of innovation, χ2(1) = 6.33, p =
.01, and so did formalization, χ2(1) = 18.96, p = .00. However, takeovers had a negative effect
on rate of innovation, χ2(1) = 10.31, p = .00, and so did HRM strategic involvement through
consultation, χ2(1) = 6.16, p = .01. Rate of innovation was lower when HRM was strategically
involved through consultation than when it was involved only on implementation or not at all.
Also, rate of innovation was higher when HRMD was responsible for recruitment and
selection, χ2(1) = 3.46, p = .06, and workforce expansion/reduction, χ2(1) = 3.97, p = .05, and
when LM was responsible for pay and benefits, χ2(1) = 10.39, p = .00. HRMD responsibility
for industrial relations boosted the positive effect of acquisitions on rate of innovation, χ2(1) =
5.89, p = .02.
Summary
The results obtained in our study are summarized in Tables 3 and 4.
<Insert Table 3 about here>
<Insert Table 4 about here>
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Organizational Change and Performance 17
How organizational change affected HRM centrality
Organizational change led to more formalization, and to a shift of responsibilities from LM to
HRMD in all areas, particularly in the case of acquisitions.
How organizational change and HRM centrality affected organizational performance
There were three systematic results. First, acquisitions and formalization led to a better
organizational performance. Second, organizational performance was better when HRMD was
responsible for (1) recruitment and selection and (2) workforce expansion/reduction, and
when LM was responsible for (1) pay and benefits and (2) industrial relations. Third,
productivity was higher when HRM was strategically involved from the outset than when it
was involved only through consultation, on implementation, or not at all.
How the effects of change on performance depended on HRM centrality
The most salient result was that HRM centrality moderated the effects of organizational
change on service quality. HRMD responsibility for workforce expansion/reduction and LM
responsibility for pay and benefits, which by themselves were beneficial to service quality
performance, boosted the positive effect of acquisitions on service quality. Additionally,
HRMD responsibility for training and development changed an otherwise negative effect of
mergers on service quality into a positive one. HRMD responsibility for workforce
expansion/reduction positively moderated the effect of acquisitions on productivity as did
HRMD responsibility for industrial relations on rate of innovation.
Third, HRM strategic involvement through consultation, which by itself was detrimental to
service quality, changed an otherwise negative effect of takeovers on service quality into a
positive one. HRM strategic involvement through consultation continued to have other
detrimental effects, though. It impaired any positive effect that mergers had on profitability
and it changed an otherwise positive effect of mergers on productivity into a negative one.
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Organizational Change and Performance 18
Overall, HRM strategic involvement appears to be a bad idea unless HRM is strategically
involved from the outset.
Discussion
The aim of this paper was to examine how HRM centrality affected organizational
performance and moderated the relationship between organizational change and
organizational performance. In doing so, we distinguished three different types of
organizational change, and included a far greater range of indicators of organizational
performance than have earlier studies. Also, we decomposed HRM centrality into
formalization, strategic involvement, and the responsibility that either the HRM department or
the Line Manager has for specific HRM areas, unlike most studies reported in the literature.
This study therefore considers process variables in addition to content aspects of HRM, which
follows Bowen and Ostroff’s (2004) proposal for studies of the HRM-organizational
performance relationships.
Generally, our findings suggest that HRM centrality moderates the relationship between
organizational change and organizational performance, particularly when organizational
performance was assessed in terms of service quality. However, whether a greater HRM
centrality was good or bad for organizational performance depended on the type of
organizational change and on the indicator of organizational performance.
Acquisitions generally improved organizational performance, whereas mixed results were
obtained for mergers and takeovers, suggesting that takeovers have a stronger negative impact
on rate of innovation, possibly because organizational actors must adjust to the policies and
practices of the acquiring company, frequently suffering downsizing and diminished career
opportunities. However, the robustness of these isolated results must be established by future
research.
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Organizational Change and Performance 19
In our more detailed analyses, organizational change resulted in more formalization, with a
positive effect on all performance indicators, corroborating the findings from earlier studies
(Apospori et al.., 2008; Combs et al.., 2006; Cunha et al.., 2003;; Lyles et al.., 1993), but did
not moderate the relationship between organizational change and organizational performance.
Albeit the need for further empirical analysis, in the case of mergers where both partners share
power and decision making, very formalized/rigid procedures and policies may jeopardize
HRM integration. These very sensitive ‘people decisions’ should be shared in a diplomatic
fashion (namely downsizing) and not through rigid procedures.
Centralization of responsibility for HRM practices occurs in all areas with organizational
change, and this was beneficial when it was responsibility for recruitment and selection and
workforce expansion/reduction, but detrimental in the case of responsibility for pay and
benefits and industrial relations. The fact that LMs are closer to the competitive compensation
packages (external equity) whereas HRM managers seek to achieve internal equity may
explain this finding. The negative impact of HRMD responsibility for labor relations on rate
of innovation is more difficult to explain, since the moderating effects clearly show that, in
acquisitions, rate of innovation is boosted when the responsibility for labor relations lies with
the HR Department. This result is intuitively plausible when we consider the major challenges
that are demanded from management in order to restore and/or regain trust from the unions
and their representatives in this major organizational turbulence.
Unlike Nikandrou and Papalexandris (2007), our study reveals that the positive effect of
acquisitions was sometimes enhanced but other times hindered by LMs’ responsibility for
certain areas. In processes of ownership change, management of workforce
expansion/reduction and industrial relations must be very cautious, because, in order to
achieve synergies, the HRM manager may need to negotiate the terms and conditions of
layoffs and compensation (Antilla, 2006; Delaney & Huselid, 1996), as well as nourish a
19
Organizational Change and Performance 20
perception of labor opportunities and security, raise expectations, support change and increase
individual effort..
Additionally, giving too much HRM responsibilities to LMs can challenge their capacity to
take on new roles parallel to their current workload, as Danya et al. (2008), Kirkpatrick et al.,
(1992) and McGovern et al. (1997) argue. However, contrary to our arguments, none of these
authors questioned that responsibilities for various HRM practices should be differentially
allocated. Our results support the concerns of Brewster and Söderström (1994) with the
devolvement of the area of pay and benefits to the Line Managers.
Our study also suggests that when the HRM department was responsible for training and
development, an otherwise negative effect of mergers on service quality was averted, and
even changed it into a positive one, possibly because it takes into consideration the different
employee segments, thus efficiently creating positive employee attitudes and increasing trust
in the future (Pfeffer, 1998).
HRM strategic involvement appears to only be a good idea when it starts from the outset,
which improves the likelihood that vertical and horizontal fit exist and increases the status of
the HR function in the organization. When HRM is involved from the outset, a strategic
vision on people issues is shared in a very clear way, whereas through consultation, this vision
remains ambiguous, therefore losing credibility, power and focus.
All used HRM centrality measures contributed to service quality, the indicator that is most
intimately linked to HRM-related outcomes (Dyer & Reeves, 1995) or operational
performance.
Limitations
Interpretation of the results must take the limitations of our study into account. First, we used
survey data with single respondents, providing no estimate of the magnitude of error due to
rater sampling (Gerhart et al., 2000). Questionnaires were completed by the senior HRM
20
Organizational Change and Performance 21
manager in each company and we do not have employees’ perspectives on HRM practices at
different levels of the organization. Some of the conclusions may be biased, particularly in
what concerns our concept of HRM Centrality. Future research should incorporate a
multilevel analysis, to reduce the impact of any bias from a specific category. We
acknowledge, however, some of the practical difficulties in doing so, considering that, during
processes of mergers and acquisitions, all human factor issues are politically sensitive and
companies may be reluctant to participate (Cunha, 1997).
Second, because the data are cross-sectional, there may be issues in the determination of
causality. Longitudinal studies could help to determine the robustness of our results, and
clarify some results that remained inconclusive.
A third limitation is that we did not use any ‘accounting/financial’ performance indicator, but
rather intermediate perceived indicators of performance. This is a reasonable practice,
considering the Cranet data include a large number of companies in 32 countries, which make
it impossible to compare financial indicators from companies in different sectors and across
national boundaries, i.e., with different baseline values and varying applicable fiscal and tax
policies. However, future studies, with a smaller number of companies, may capture more
precise measures of firm performance.
Finally, there may be a statistical reason why acquisitions showed such pervasive effects on
organizational performance while mergers and takeovers did not. In the Cranet data we
observed a moderate rate of acquisitions, but low rates of mergers and takeovers (see Table 1).
It may well be that the effects of mergers and takeovers could not be estimated as reliably as
the effects of acquisitions. Thus, conclusions about the differential impact of acquisitions and
other organizational changes should be drawn with caution.
21
Organizational Change and Performance 22
Managing M&As - Implications for practice
The findings in our study suggest different ways to manage the integration process in the three
types of major organizational change associated with ownership.
In the case of acquisitions, our results imply a greater centrality of HRM, i.e. strategic
involvement from the outset and a shift of responsibility from LMs to HRM Managers in most
HRM practices, except for pay and benefits. When one company acquires another one, and
therefore is expected to integrate the acquired one into its policies, strategy, and culture, the
human resources function has an important role as change agent, to promote and reinforce
organizational transformation. Yet, looking at the company that is being taken over, it is
natural that the turbulence and instability associated with the ambiguity of what is about to
come, will negatively affect employee motivation, hence performance and rate of innovation
in particular. HRM should therefore try to minimize this ambiguity, through communication
and development of realistic expectations, acting as much as possible as internal consultants
to top management teams.
Mergers, on the other hand, have a more delicate negotiation process in all issues affecting
employees. Flexibility is needed to adjust to different situations as the integration process
evolves. Our results suggest that low strategic involvement of HRM and low formalization are
positive. On the other hand, centralizing training and development activities in the HRM
manager is important, to promote cultural integration and to develop new skills, aligned with
the strategic intent of the new emerging organization.
Conclusion
In sum, two main conclusions are highlighted in this study. First, that HRM centrality
moderates the relationship between organization change and organizational performance, with
different effects depending on type of organizational change, on type of responsibility for
22
Organizational Change and Performance 23
HRM practices and HRM strategic involvement, and on type of performance indicators.
Future research should systematically analyze these effects.
Second, results suggest that mergers and acquisitions should be considered as two different
cases. Whereas acquisitions seem to require more formalized and centralized HRM practices
with a strategic involvement of the HRM function from the outset, in the case of mergers,
flexibility and low formalization of HRM practices seem to produce better organizational
results. This line of inquiry may help to better understand the puzzle of why organizational
changes sometimes succeed and other times fail.
23
Organizational Change and Performance 24
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Table 1. Distribution of sample by reported histories of change (percentages).
No mergers Mergers
No takeovers Takeovers No takeovers Takeovers
No acquisitions 4966 (62.75) 417 (5.27) 515 (6.51) 54 (0.68)
Acquisitions 1494 (18.88) 142 (1.79) 245 (3.10) 81 (1.02)
N = 7914.
30
Organizational Change and Performance 31
Table 2. Distribution of companies experiencing mergers, acquisitions, or takeovers, by
industrial sector.
Acquisition Takeover Merger
Industrial sector
Primary 2.3% 1.1% 2.8%
Secondary 47.6% 57.3% 37.9%
Tertiary 50.1% 41.7% 59.3%
31
Organizational Change and Performance 32
Table 3. Summary of main effects.
Centrality of HRM
Formalization with acquisitions and mergers
HRM responsibility
Pay and benefits with acquisitions
Recruitment and selection with acquisitions and takeovers
Training and development with acquisitions
Industrial relations with acquisitions
Organizational Performance
Service Quality with acquisitions
with formalization
HRM strategic involvement through consultation
HRM Manager’s responsibility for recruitment and selection
HRM Manager’s responsibility for workforce expansion or reduction
Line Manager’s responsibility for pay and benefits
Line Manager’s responsibility for industrial relations
Productivity with acquisitions
with formalization
HRM strategic involvement from the outset
HRM strategic involvement through consultation
HRM Manager’s responsibility for workforce expansion or reduction
Line Manager’s responsibility for pay and benefits
Line Manager’s responsibility for industrial relations
Profitability with acquisitions
with formalization
HRM strategic involvement through consultation
Rate of Innovation with acquisitions
with formalization
with takeovers
HRM strategic involvement through consultation
HR Manager’s responsibility for recruitment and selection
HR Manager’s responsibility for workforce expansion or reduction
Line Manager’s responsibility for pay and benefits
32
Organizational Change and Performance 33
Table 4. Summary of moderating effects.
On Service Quality Acquisitions Line Manager’s responsibility for pay
and benefits
HRMD’s responsibility for workforce
expansion or reduction
Mergers HRMD’s responsibility for training &
development
Takeovers HR strategic involvement through
consultation
On Productivity Acquisitions HRMD’s responsibility for workforce
expansion or reduction
Mergers HR strategic involvement on
implementation or none
On Profitability Mergers HR strategic involvement through
consultation
On Rate of Innovation Acquisitions HRMD’s responsibility for industrial
relations
33
Organizational Change and Performance 34
Figure 1. The relationship between organizational change, the centrality of HR, and
organizational performance.
Organizationalchange
• Acquisition• Merger• Takeover
Centrality of HR
Formalization• Mission statement• Business strategy• Personnel/HRM strategy• Corporate values statement
HR strategic involvement• From the outset• Through consultation• On implementation• Not consulted
HRM responsibility• Pay and benefits• Recruitment and selection• Training and development• Industrial relations• Workforce expansion/reduction
Organizationalperformance
• Service quality performance• Level of productivity• Profitability• Rate of innovation
Organizationalchange
• Acquisition• Merger• Takeover
Centrality of HR
Formalization• Mission statement• Business strategy• Personnel/HRM strategy• Corporate values statement
HR strategic involvement• From the outset• Through consultation• On implementation• Not consulted
HRM responsibility• Pay and benefits• Recruitment and selection• Training and development• Industrial relations• Workforce expansion/reduction
Organizationalperformance
• Service quality performance• Level of productivity• Profitability• Rate of innovation
34
Organizational Change and Performance 35
Figure 2. The effect of acquisitions on service quality performance, moderated by HRM
responsibility for pay and benefits (top left panel) and HRM responsibility for workforce
expansion/reduction (top right panel), the effect of mergers on service quality performance,
moderated by HRM responsibility for training and development (bottom left panel), and the
effect of takeovers on service quality performance, moderated by HR strategic involvement
through consultation (bottom right panel).
Responsibilityfor pay andbenefits
LM HRM
No Yes
Acquisitions
1
2
3
4
Ser
vice
qua
lity
perfo
rman
ce
Responsibilityfor workforceexpansion/reduction
LM HRM
No Yes
Acquisitions
1
2
3
4
Ser
vice
qua
lity
perfo
rman
ce
Responsibilityfor training &development
LM HRM
No Yes
Mergers
1
2
3
4
Ser
vice
qua
lity
perfo
rman
ce
HR strategicinvolvement
No Through
consultation
No Yes
Takeovers
1
2
3
4
Ser
vice
qua
lity
perfo
rman
ce
35
Organizational Change and Performance 36
Figure 3. The effect of acquisitions on level of productivity, moderated by HRM
responsibility for workforce expansion/reduction (left panel), and the effect of mergers on
level of productivity, moderated by HR strategic involvement through consultation (right
panel).
Responsibilityfor workforceexpansion/reduction
LM HRM
No Yes
Acquisitions
-1
0
1
2
Leve
l of p
rodu
ctiv
ity
HR strategicinvolvement
No Through
consultation
No Yes
Mergers
-1
0
1
2
Leve
l of p
rodu
ctiv
ity
36