managing employee expectations during acquisitions

HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 11 NO 2, 2001 1 7

Managing employee expectations during acquisit ions

Nancy Hubbard , Templeton College, Oxford

John Purcell , University of Bath

Human Resource Management Journal, Vol 11 No 2, 2001, pages 17-33

T h e re is a wide body of evidence that suggests that the management of human factors’

in post-acquisition implementation is important and, where it is badly managed, helps

to explain why up to half of acquisitions are not deemed to be successful. A c e n t r a l

f e a t u re in this process is the management of employee expectations. Using re s e a rc h

insights drawn from the management and formation of expectations in recruitment and

f rom breaches of the psychological contract, this article reports on re s e a rch in

o rganisations subject to a takeover within two years of the ® eld work. Detailed ® n d i n g s

on two of these cases are used to explore the dimensions of dual expectations in such

c i rcumstances. It is suggested that employees in acquired companies have concerns that

become expectations concerning both themselves (`me’) and their work group (`us’),

ranging from immediate job and employment worries on transfer to longer-term status

and behavioural and cultural concerns in the new’ o rganisation. These expectations will

vary over time and have different facets according to the seniority of the employee, the

d e g ree of integration sought by the acquirer and the extent to which expectations formed

a re proven to be realistic and realisable. The two cases analysed reveal different aspects of

unmet expectations in acquisitions. Seven factors were identified as influential in

shaping employees’expectations in acquisitions: quality of communication, believability

of information, trust in management action, credibility of leadership, fairness of action,

consistency of action and communication and logic of management action or behaviour.

C o n t a c t: Nancy Hubbard, Templeton College, Oxford OX1 5NY.

Email: hubbard a s s o c s @ a o l . c o m

A cquisition re s e a rch utilising a variety of methodologies has consistently found

that approximately half of acquisitions are deemed failures (Hunt et al, 1985;

Ravenscraft and Schere r, 1987; KPMG, 1997, 1999). Various suggestions have

been off e red to explain this. Dif® culties in achieving organisational ® t, especially the

meshing of cultures and management styles, is often identified (Buono et al, 1985;

Datta and Grant, 1990). Business strategy ® t in order to capitalise on synergies is held

to be critical (Chatterjee, 1986). Marks and Mirvis (1982) stress that people and

employee issues account for a third to a half of all merger failures. Post-merg e r

integration is deemed critical for acquisition success by many (Schweiger et al, 1987;

H u b b a rd, 1999). Hunt et al (1987) found a positive correlation between success of

implementation and the overall perceived success of the acquisition in 83 per cent of

cases, making it the most `decisive variable in success and failure’ . The 1992 Coopers &

Lybrand study found that a successful implementation was key to overall success in 76

per cent of cases ± its highest correlation (Coopers & Lybrand, 1992: 260). KPMG (1999)

distinguishes between `hard keys’ to successful mergers (synergy evaluation,

integration project planning and due diligence) and `soft keys’ . The latter cover the

Managing employee expectations during acquisitions

selection of the management team and resolving cultural issues and communications.

Attention to these soft or behavioural issues from the beginning of the acquisition

p rocess was strongly associated with success measured in terms of shareholder value.

Exactly what elements of the acquisition process produce a greater chance of success

a re still open to debate. It is unlikely that just one element causes acquisition success or

f a i l u re but rather an amalgamation of several. Supporting this there is a wide body of

evidence suggesting that human factors during post-acquisition implementation are of

g reat importance (Cartwright and Cooper, 1992; Hunt et al, 1987). These ® ndings are

supported by re s e a rch which has found that employees suffer from the uncertainty

accompanying acquisition (Buono and Bowditch, 1989).

One aspect of the acquisition process is the way in which the acquiring company

management seeks to shape and then meet the expectations of employees in the ® r m

a c q u i red. This process is akin to the re-negotiation of the psychological contract, but

undertaken in circumstances where the expectations of individuals are mixed with

wider concerns about how groups of employees will be treated in the new org a n i s a t i o n .

Thus, people can be expected to have dual expectations about how they personally will

be managed and how the acquisition will affect their workmates, defined both

n a r rowly as colleagues and broadly as members of an organisational community. The

assumption, following the psychological contract, is that if employee expectations are

p roperly managed during the implementation process there will be less employee

uncertainty and ambiguity, and damage to levels of organisational commitment will be

minimised. If, however, there is a mismatch in expectations, and employee perc e p t i o n s

of trust in management and the `fairness of the deal’ are thwarted, the outcome can

be expected to be undesirable for both the individual’ s sense of well-being and

o rganisational performance.

The aim of the re s e a rch reported here was to model the dimensions influencing

employee expectations in acquisitions and to test their validity through intensive case

re s e a rch of company takeovers that had occurred within two years of the ® eldwork. Since

t h e re was very little previous re s e a rch on managing employee expectations in

acquisitions, the re s e a rch was essentially inductive, following a grounded theory route to

generate propositions about managing employee expectations in the acquisition pro c e s s .

It was beyond the scope of the study to link these to the ® nancial performance of the

companies studied, in part because of the dif® culty in gaining appropriate disaggre g a t e d

accounting data. We use the term `acquisition’ rather than `merg e r ’ since the latter

p resupposes a marriage of equals which very rarely happens, even if the acquiring

company’s top management assert that this will be the case. Indeed, this promise may be

the ® rst act of many in setting up expectations which are subsequently not met.

In this article we look ® rst at previous work on met expectation theory and re v i e w

what little work there has been in acquisition expectations. We then build on this to

identify the components of employee expectations in what we term the `dual

expectation model’ and link this to variables that can be hypothesised to in¯ uence the

dimensions and strength of the expectations. The two cases reported in the article

contrast diff e rent dimensions of expectation management. In the first, promises of

`business as usual’ are contrasted with cost-cutting through de-layering and

rationalisation of the business, which deeply and negatively affected employee

expectations. In the second, organisational integration was well handled in terms of job

security and re d u n d a n c y, but deeper problems of cultural behaviour and what one

respondent called tribalism’ emerged, thus illustrating a diff e rent facet of expectation

m i s m a t c h .1 In the discussion of the findings we classify the type of concerns that

18 HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 11 NO 2, 2001

employees had experienced into seven areas. These identify the sort of management

behaviour and actions which, if badly handled, can lead to expectations being

f rustrated or unmet and to a breach of the psychological contract. This has implications

for company practice in handling acquisitions.

RESEARCH INTO EXPECTATION THEORY

Expectations have been de® ned as the beliefs individuals hold about what leads to

what in the environment, and serve as a visual map of the organisation (Porter et al,

1975). Expectations are contingent and constantly modifying in the light of the

e n v i ronment, communications and employee interactions. There is a substantial body

of work that analyses the impact of managing expectations during new hire

re c ruitment, through the socialisation process and realistic job previews (Schweiger

and DeNisi, 1991; Wanous et al, 1992). While not directly relevant to the acquisitions

p rocess, it does raise issues about the importance of creating or having re a l i s t i c

expectations of the employment relationship and indicates some of the negative

outcomes when exceptions are unmet. In general the re s e a rch suggests that new

employees who receive realistic job previews tend to be `more satis® ed with their jobs

and more committed to their organisations, to experience less stress and to be less

likely to leave than employees socialised through more tradit ional methods.’

(Schweiger and DeNisi, 1991)

In Weitz’s landmark study (1956) half of the newly re c ruited insurance salesmen

received information detailing only the job’s positive elements, while the other half

received a more realistic appraisal of the job’s negative and positive aspects. After six

months, only 43 per cent of the former re c ruits were still working for the company

while 71 per cent of the latter remained. Weitz concluded that those with re a l i s t i c

expectations were more able and willing to cope with the job’s demands. A study by

Horner et al (1979) based on US army trainee re c ruits also found that realistic job

p reviews reduced role ambiguity, modified expectations and lowered turnover.

P remack and Wanous (1985) found that realistic job previews also had a positive eff e c t

on employee retention and organisational commitment, while Wanous (1978) found

d e c reases in role ambiguity and increases in role clarity.

Employees’ expectations for current positions can be heavily in¯ uenced by pre v i o u s

work experiences or beliefs of what work should be like, which can lead to mismatched

expectations (Porter et al, 1975). When expectations are not met, dissatisfaction can

o c c u r, manifesting in lower commitment, productivity and trust and higher intention

to leave, as well as absenteeism (Davy et al, 1988). This is con® rmed by recent re s e a rc h

on the breach psychological contract. In Robinson’s re s e a rch unmet expectations led to

s t rong employee reactions when promises went unful® lled, leading to a decline in

employee performance, civic virtue behaviour and intentions to remain in the

o rganisation (Robinson, 1996: 592). Signi® cantly for this study, Robinson shows that the

likelihood of a contract breach leading to these behaviour outcomes is mediated by the

level of initial trust employees have of their employer. This would imply that the

formation of trust in acquisitions is crucial but, as we shall show, dif® cult to achieve.

Modelling employee expectations in acquisitions

Employee expectations are likely to be complex when individuals and groups of

employees are forced to transfer employment from one organisation to another in an

acquisition. We proposed that there would be four elements to employee expectations

dealing with expectations about `me’ and about `us’, both at the point of transfer and

Nancy Hubbard and John Purcell

19HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 11 NO 2, 2001

subsequently as employees in the `new’ organisation. These will be mediated by the type

of employee and the degree of business integration between the two org a n i s a t i o n s .

First, each individual affected has concerns primarily about whether they have a job

in the new company and what type of job it is, including the nature of the job and the

expectations of job performance re q u i red. This re q u i res the psychological contract to

be re-formed, both in the sense of what the employees believe is expected of them by

the new employer and what they obligate their new employer to provide in terms of

HR policies, job design and delivery of the deal (Patch et al, 1992; Rousseau, 1990;

Guest, 1998).

S e c o n d l y, individuals affected by acquisitions have additional and unique concerns on

employment transfer about how the change will affect not just themselves as individuals

but their group of fellow workers in the acquired ® rm. This includes, but goes beyond,

job security for the work group, section or department. It covers concerns on the

maintenance of group roles and responsibilities, the maintenance of relative autonomy

and how they will ® t in with and work alongside individuals in the new company. These

a re group expectations on re-socialisation. Caplow defines socialisation as the

o rg a n i s a t i o n a l l y - d i rected process that pre p a res and quali® es an individual to occupy an

o rganisational position’ (1964: 169). In acquisitions this takes on group dimensions since,

u s u a l l y, whole work teams are transferred with pre-existing expectations.

T h i rd l y, individuals express concern about how they ® t into the new ® rm in terms of

status and pro c e d u res used in performing job roles, such as codes of behaviour, dress and

the management of role con¯ ict if it arises. Feldman (1981) suggests that in the ® rst few

weeks in a new job employees try to de® ne their tasks and priorities. He concludes that

having a realistic job expectation in¯ uences the individual’s ability to de® ne one’s job.

F i n a l l y, these concerns individuals have coalesce into wider group or collective

worries about the culture of their `new’ organisation, its management style, care e r

management and power relationships. We term this `cultural behaviour’, learning

about and internalising as a group `the shared patterns of beliefs, assumptions and

expectations held by organisational members, and the group’s characteristic way of

p e rceiving the organisation’s environment and its norms, roles and values as they exist

outside the individual.’ (Schwartz and Davies, 1981: 33)

These dual expectations, we suggest, will be in¯ uenced by or mediated thro u g h

t h ree contingent factors: the diff e rent phases of the acquisition process, the role level of

the individual and the type of organisational integration aimed for in the combined

c o m p a n y. Four phases in the acquisition process can be identi® ed. Initially there is the

strategic planning stage; this is done mainly in secret involving senior executives fro m

both organisations, unless it is a hostile takeover, but rumours and press speculation

can arise at this time. This is followed by the formal communication of intentions

including the issuing of the shareholder prospectus, consultation with recognised trade

unions and communication to employees. Promises and denials at these two stages

play a large part in forming initial expectations. The third phase is when the acquisition

is being implemented, with the new owners exerting control in myriad ways, fro m

highly symbolic logo changes to rationalisation programmes and job transfers. This is

when expectations are initially tested and further modified in the light of how the

change management is experienced. The ® nal stage, which in a sense never ceases, is

the process of stabilisation; here, in particular, the management of discre p a n c i e s

between intention and enactment becomes important in the sense that account is taken

of employee concerns expressed in the implementation phase.

Expectations are predicted to vary according to the role level of the individual,

depending on the extent of their involvement in the acquisition process. For analytical



purposes, three types of employee are identi® ed, based on their closeness to decision

making and opportunity to in¯ uence the outcome of acquisition and post-acquisition

decisions: `negotiators’, `enactors’ and `recipients’ . Each plays a diff e rent role in the

four stages of acquisition and this is likely to in¯ uence not only their own expectations

but the importance given to the components of dual expectations and the expectations

that others have of them.

Negotiators are the very senior managers who are most likely to be involved in the

acquisition from the beginning and usually have high degrees of discretion in

managing the acquisition process. Since they are involved from the beginning, they can

be expected to have the most accurate expectations of future events. As many

negotiators are expected to be at the top of their career in the organisation, future ro l e

development is likely to have less importance than status such as job title or board

membership. There is likely to be particular concern with cultural behaviour, beliefs

and expectations.

Enactors are managers below negotiators with responsibility for implementation

and communication. They commonly have little input in the design of the acquisition

implementation programme, while simultaneously lower-level employees look to them

for information and guidance. Thus, enactors have to deal not only with their own

anxieties but manage those of their subordinates in situations where information ¯ o w s

f rom the negotiators are likely to be restricted, either on grounds of secrecy and

c o m m e rcial con® dentiality or because of the time taken to draw up implementation

plans such as the merging of departments, appointments to key posts and the

development of common pro c e d u res. Enactors, as typical middle managers, can be

expected to have career expectations. Thus, they are likely to have high levels of

concern about all four dimensions of the dual expectation model and during each of

the phases of the acquisition process. Some negotiators in the acquired firm will

become enactors in the new organisation since they can lose status and position.

Sudden and significant changes in role are likely to exacerbate the high levels of

concern experienced by enactors.

Recipients are usually non-managerial employees with little or no input into the

decisions being made on the acquisition process , yet have to cope with the

consequences. Even the presence of trade unions is unlikely to alter the situation; the

transfer of undertakings regulations do not apply directly to share - p u rc h a s e

acquisitions, and the level of consultation and information-sharing is generally low

c o m p a red with continental European practice, for example in the Netherlands (We n l o c k

and Purcell, 1990/91). In conditions of uncertainty typical in most acquisit ions,

recipients are expected to experience a sense of anomie and powerlessness, reliant on

enactors (their bosses) for information which is most likely not available. It is expected

that emphasis will be placed on transitional fears ( do I have job?’) and group worries

(`what will happen to us?’; how do we ® t in to the new ® rm?’). Concerns about status

and cultural behaviour are likely to be low but may emerge in the stabilisation period if

o rganisational integration is poorly handled.

F i n a l l y, to add to this already complex picture, the strength of employee concerns,

and thus the importance of managing expectations, is expected to relate to the degre e

of organisational integration following the acquisition. The prediction is that the

g reater the degree of organisational integration, the greater the level of concern initially,

since sites are likely to close, rationalisations occur and there is a widespread belief in

`winners and losers’ in the organisational musical chairs that follow. Later, in the

implementation and stabilisation periods, expectations on careers and culture come to

the fore and may be positive or negative to the extent that expectations match



experience. In stand-alone acquisitions, where the new owners do not seek integration

beyond ® nancial control, the reverse is expected. That is, employees’ initial concerns

a re relatively low, once they realise that their workplace remains much as before, but

concerns may grow later, especially for negotiators and enactors as they worry about

the long-term viability of the unit, the investment plans of the new owners and the new

rules of performance management.

In sum, our central re s e a rch proposition is that employee concerns and their

expectations on the management process acquisitions will take the form of dual

expectations concerning both the individual’ s views about his or her future and

worries about the future of the work group or section he or she belongs to. These

expectations centre on the re-forming of the psychological contract, group re -

socialisation, the impact of status and pro c e d u res in the new ® rm on the individual and

the cultural behaviour of the new org a n i s a t i o n .

These expectations are shaped by four interrelated contingent factors:

l expectations will vary during the four stages of the acquisition process (planning,

communication on transfer, implementation and stabilisation);

l expectations will be mediated by the employees’ positions in the ® rm, whether

negotiators, enactors or re c i p i e n t s ;

l expectations will be in¯ uenced by the type of post-acquisition strategy of the

a c q u i re r. The greater the extent of organisational integration, the more likely

employees are to have immediate concerns about their personal and group futures in

the new organisation; and

l expectations will be in¯ uenced by the ability of the acquiring ® rm to control the ¯ ow of

information available in all four stages of the acquisition process and the extent to which

senior managers of the acquiring ® rm manage each of the four dimensions of employee

expectations so that, as far as possible, expectations are realistic and re a l i s a b l e .

METHODOLOGY

In the first part of the two-year re s e a rch programme, after an extensive literature

s e a rch, 22 background interviews were held with executives who had been involved in

an acquisition in recent years both as `predators’ in acquiring companies and

`defenders’ in target ® rms. This led us to generate the propositions concerning dual

expectations and the impact of contingent factors. The main study took place in ® v e

companies where an acquisition had occurred in the previous two years; two of the

case studies are analysed in this article. In one case the re s e a rch was undertaken as the

acquisition was taking place. In two other cases ® eldwork occurred six months after

the deal, while the remainder were studied after a gap of 12 to 24 months. In the two

cases discussed here, detailed taped interviews were held with 12 negotiators, 43

enactors and 16 recipients. Care was taken to ensure that each interviewee had

s u f® cient length of service to have experienced the acquisition from the beginning.

W h e rever possible, the choice of whom to interview was left to the re s e a rchers. In

practice, relatively few constraints were imposed, in the main because the need for

open access had been included in the access discussions.

The face-to-face interviews were stru c t u red along the lines of the dual expectation

model and used the phases of the acquisition process to focus the discussion. The

interviews were thus able to probe the acquisition process as experienced by the

individual. The weakness of this was the need to have re t rospective analysis, in some

cases asking respondents to think back to an event two years ago. However, the range

of interviews and the focus on key incidents or events allowed for some degree of



checking, in that one respondent’s memory of events, but not interpretations, were

matched with others. The focus was predominately about feelings, emotions and

reactions often revealed as stories of events and actions. The taping of interviews

p roved crucial in capturing the richness of these views and experiences. Transcripts of

the taped interviews were produced and content analysis undertaken based on key

w o rds and phrases. As themes emerged from the data, a classi® cation scheme was

c reated to provide the framework for analysis.

At the end of the interview respondents were asked in a stru c t u red phase to rate

their levels of concerns on a scale of 1 to 5 (1 being no concerns and 5 being extre m e l y

concerned) at various times during the acquisition process, using ¯ ash cards. This was

done to provide some means of quantifying and aggregating opinions to aid both

i n t e r-case and time-period analysis. The relatively small number of interviews in each

case for each type of employee meant that there were insufficient numbers to

undertake correlation analysis with statistical significance. What, then, is re p o r t e d

h e re is an exploratory study of the multifaceted nature of employee expectations

during and after an acquisition has taken place, with the aim of synthesising the issues

in one of the most complex areas of organisational life. We ® rst give an overview of

the process of managing the acquisition in each of the cases analysed in this article,

and then examine the thematic issues emerging from the data in the light of the

analytical model.

Case one: cost reduction and the collapse of trust

The first case, studied six months after the acquisition, involves the subsidiary

sale of a medium-sized guarding company (for the sake of the case study called

Quality Guarding) from a conglomerate to a related conglomerate (re f e r red to as

Service Conglomerate). Quality Guarding employed 12,000 staff in decentralised

locations run through seven independe nt regional offices. A rea managers co-

o rdinated the various locations in their jurisdiction, running between 10 and 14

locations depending on various factors including their own ability and the units’

geographical dispersio n.

The sale of Quality Guarding came as a complete shock to its management team.

The question of a potential sale had been broached several months earlier, but the

chairman had stated unequivocally that Quality Guarding was a core part of the

business and its sale was out of the question. When the sale actually occurred, the

d i rectors heard through various means ± a handful through the parent company, the

majority v i a junior colleagues or through the media.

The acquiring organisation’s chief executive had a ruthless reputation in the industry;

comments in the press surrounding the subsidiary sale re f e r red to his reputation and track

re c o rd. He told the press, but not the staff, there would be a doubling of pro ® t marg i n s

within two years. Service Conglomerate moved quickly to allay Quality Guarding’s most

senior management’s concerns by holding a reception and presentation for the dire c t o r s

on the night the sale was announced. They distributed a question-and-answer sheet which

discussed the issues of the acquisition such as reasons for sale and outlined terms and

conditions, followed by a presentation by Service Conglomerate’s chief executive. A

follow-up letter was sent to all Quality Guarding’s staff welcoming them to the new

o rganisation, quickly followed by a letter from, and initiated by, the managing director of

Quality Guarding, saying it is business as usual’:

Business as usual was the message that went out to all the clients and my

s t a ff, and it was a lie as it transpired, because within months there was a



s i g n i ® cant change. `Business as usual, there will be no change’ is a coded

message for `within six to eight weeks we will have a radical rethink of the

whole business and structurally change things.’

Senior enactor, Quality Guarding

The managing director of Quality Guarding was told to pre p a re a business plan for

Service Conglomerate within six weeks outlining profit improvement savings.

Although no ® g u res were actually given, the media reports gave a good indication of

what was wanted, namely profit improvement and little need for stru c t u r a l

integration. For six weeks the three most senior directors ± managing, marketing and

finance ± worked out a plan which was eventually accepted by the board. The

implementation of that plan was to be phased over three years, with the initial

reductions to occur immediately. The operational plan was drawn up with the

peripheral help of the personnel function and with the inclusion of the re g i o n a l

managing directors only weeks before the date of implementation. The latter did,

h o w e v e r, know that planning had taken place prior to their involvement, and

resented this.

The bulk of the plan entailed cost-cutting by reducing the number of managerial

employees without actually affecting the number of staff in the guarding units. Certain

functions such as pay-roll and accounts were going to be centralised, with the latter

occurring nine months hence. Two of the seven regions were to be incorporated into

the remaining ® ve regions.

No further formal communication was sent to employees until a date was chosen

when the redundancy announcements would occur, removing approximately 40 per

cent of regional directors, 20 per cent of middle operational managers and most of the

regional training staff. There was an attempt to ® nd people jobs but in most cases the

options off e red were not very attractive. Information concerning the terms and

conditions of the affected employees was collected from the centrally-held personnel

® les which were, in many cases, out of date and incorrect. All management employees

w e re told to attend the meetings which were to be held individually with the re g i o n a l

managing dire c t o r s .

This day has come to be known within the company as `Black Monday’ . The

technique of a fast and painful execution of redundancies was termed the `abattoir

e ffect’ by Quality Guarding’s ® nance dire c t o r. He expressed the belief that employees

actually pre f e r red the quick, unsuspected process of redundancies rather than

knowing of the redundancies ahead of time. Although some regional managing

d i rectors handled it better than others, the brutality of the day shocked and appalled

those employees being made redundant and those remaining. The personnel

managers were appraised of the situation only minutes before they were supposed to

assist in the process and ostensibly help with counselling. People’s redundancy pay

calculations, job titles and even names were often incorrect. Employees from the

disappearing regions were told to go to other of® ces and were made redundant by

people they had not met before. In several cases diff e rent directors interru p t e d

meetings to re h i re employees being told they were redundant. Other employees were

told that they didn’ t have a job at one of® ce and should go to another of® ce to see if

they had a job for them there:

I thought it was a horrendous way to treat people, to have them sitting

downstairs from 9am with colleagues who were being made re d u n d a n t .

For two or three of them it was just a bolt out of the blue...it was

disgraceful, it was so insensitive to those people’s feelings and the fact that



we knew they were going and they didn’t ± you were looking at them and

thinking, What do I say now?’ It was an awful feeling.

E n a c t o r, Quality Guarding

T h e re didn’t seem to be any logic in who went and who stayed. We were

never told why those people were chosen, and I knew I had to sit with

those people and they would ask me why, and I couldn’t begin to tell

them. There was no rationale in who went and who stayed.

E n a c t o r, Quality Guarding

In addition to the reductions in staf® ng, further changes were made in order to

maximise profits. The training department was radically reduced, yet customers

continued to pay the training levy as part of the contract price. This created substantial

role con¯ ict and ambiguity for the managers whose previous job performance had been

based on giving a total quality service to clients in order to achieve a long-term client

relationship. In effect, those managers were now being re q u i red to lie to the customers:

They don’t seem to realise what this does to us and me. Sometimes you

have to be a little devious and tell the odd white lie, but this is a massive

one, it is horrendous...if there was something concrete, like it could

genuinely save them money, that is one thing; I could sell it as a ® n a n c i a l

b e n e ® t to [the client]. E n a c t o r, Quality Guarding

Within four months of Black Monday, a further 15 per cent of middle managers left

the company voluntarily. This was in some cases due to the unfair way their colleagues

had been treated, and in others to the disillusionment caused and ethical issues raised

by role con¯ ict. Further resignations were not calculated in the manpower planning

s t r a t e g y, and some of those made redundant had to be re h i red as consultants at above

their previous salaries. Interviewees were asked if they were looking for another job ±

one of the standard tests for effective organisation commitment. A p p roximately half of

all employees across the regions said they intended to leave, and over three-quarters of

middle managers were hoping to go. Those employees who did stay suff e red badly

f rom survivor guilt due to the lack of understanding over the redundancies’ selection

criterion. Those remaining had to cope with a dramatically increased workload, often

with new colleagues, bosses, subordinates and customers. Whereas previously there

had been enough time to deliver a quality service, employees did not have enough time

to do the job in the same way; some tried to compensate by working 70-hour weeks.

In relation to dual expectations, employees had concerns in all four areas; however,

these changed over both time and context. In the initial two months all enactors and

receptors were concerned about their jobs, this being exacerbated by the inconsistency

of the internal and external communication. These concerns diminished until Black

M o n d a y, when management’s plans were unveiled and the employees, for the most

part, were deeply shocked by its severity.

After ® nding out whether or not they had jobs, employees focused their concerns in

other areas. The most senior negotiators had few concerns and in fact were relieved by

the amount of autonomy they were being given by Service Conglomerate. Less senior

negotiators ± the directors in the regions ± were concerned primarily with the cultural

implications of the new company rather than other issues. Enactors were more

concerned about the changes in pro c e d u re, most notably role ambiguity and cultural

issues; at least part of these concerns can be attributed to the way in which Black

Monday was handled. Their concerns remained high and their intention to leave the

o rganisation was also the highest; they were also most critical of management



c re d i b i l i t y, fairness, communication and trust. Recipients, after learning that the

acquisition did not affect their positions or materially affect their jobs, were re a s o n a b l y

comfortable with the new organisation. The troubled rationalisation programme did,

h o w e v e r, appear to destroy trust in management:

I don’t know if they will trust again; it will take a long time if they do.

People can forget things and go on but it never goes away completely.

Once it has been done to you, you never forget it totally.

Recipient, Quality Guarding

Case two: full integration and cultural concerns

The second case, `Global’, studied 20 months after the acquisition, is a blue-chip, highly

sophisticated, global company with a well-established strategic HR function espousing

high ethical and moral beliefs. It is known in the industry for being a good employer,

o ffering generous compensation and able to attract the very best employees. To

accommodate these it has a very strong internal labour market for its `fast-track’

employees, as well as very careful career planning and extensive training. It has a

highly distinctive company culture almost tribal in nature, strongly written in

orientation with a handbook for most pro c e d u res and a distinctive company language.

Global acquired a substantial family-owned US consumer products company ±

`Consumer Inc’ ± with a European operation larger than its own in terms of number of

employees and product line. The European employees’ ® rst contact with Global was

t h rough a company video sent from the US, with the company’s chairman standing at

Consumer Inc’s head of® ce saying that this was a true merger and that the companies

would continue to trade under their own brand names. In addition, he stressed that the

company cultures were very similar and, there f o re, any changes would have minimal

impact on employees. In the next eight months, the European operations were fully

integrated and, within two years, Consumer Inc as a company name ceased to exist.

Many of the employees interviewed had believed him, while some were later to feel

cynical towards his insincerity:

We had no experience of what happens at a takeover, so when someone

tells us that everything will carry on the same, in our innocence we re a l l y

didn’t think too much about it... When [the major changes] did come, it

was an even bigger shock and it wasn’ t marginal change ± it was a

m o n s t rous change. N e g o t i a t o r, Global

It was a very false insincere presentation re a l l y...they said that they

w e ren’t going to change anything, but if you believed that you were tru l y

naive...it just had to change. E n a c t o r, Global

T h e re were some redundancies arising from the acquisition. In those cases,

employees were told with plenty of notice, given very generous terms and were

handled in a fashion considered by those interviewed, as well as by those interviewed

in exit interviews, to be very fair. Employees interviewed reported that communication

concerning their personal job situation was good, with adequate management of

expectations in this are a .

Consumer Inc employees who remained, however, found the company cultures and

p ro c e d u res to be very diff e rent and had dif® culty in understanding the `Global way’.

Negotiators were sent on a two-day course to learn memo writing the Global way,

although the diff e rences in pro c e d u res and language within the organisation were not

discussed in any formal environment. Many of the negotiators found these diff e re n c e s



bewildering; those interviewed believed that they impaired their ability to perform

their jobs, yet during this time Global was evaluating the newly acquired employees

and found many to be below the equivalent Global standard. Perhaps because their

performances were perceived to be lacking by Global during this assimilation period,

all were moved laterally or into non-career jobs.

Enactors did not even have the bene® t of the memo-writing course, and many found

the transition from a ¯ uid oral culture into a written one frustrating. More than one

enactor spoke of having documents ripped up in front of them, accompanied by the

comment, `That is not how we do things at Global.’ A few employees were more

fortunate in having Global colleagues explain the language and cultural implications of

Global; however, most were not. As with the negotiators, most enactors were demoted,

moved into non-career positions or laterally within the organisation. Those interviewed

reported that the more ambitious enactors became disillusioned and left, stating in their

exit interviews the dismay at the discrepancies in expectations over career pattern and

the lack of help in understanding given by Global. Those who remained felt that their

individual expectations concerning their job and those of their colleagues were well

managed, but the collective issues of culture and pro c e d u res were poorly managed:

My boss was tremendously supportive, but there were people I worked

with who...when it suited them and they thought they could get away

with it, would have no hesitation in telling me I didn’t know this or that’,

or that I wasn’t doing it right because I wasn’t `one of them’. I saw

colleagues who were really crushed by it, I watched them wilt ± such a

shame because they were not untalented people. E n a c t o r, Global

The thing that really amazed me was that it was very much a ® nd out for

y o u r s e l f ’ culture. I had to f ind out the hard way, with my first

recommendation being torn apart and with me being told, `What is this?

This isn’t the way we put forward a recommendation in Global; this isn’t

the way we make things happen at Global.’ You had to ® nd out the hard

w a y, so I had a few scars and bruises to show for it. E n a c t o r, Global

Immediately after the acquisition the negotiators felt worried about their job

s e c u r i t y, but these fears were soon dispelled while concerns over status and pro c e d u r a l

and cultural diff e rences continued to rise sharply. A p p roximately two years after the

acquisition, the negotiators’ worries were focusing more on career pro g ression, as

lateral moves gave the impression of glass-ceiling issues for acquired employees.

Those who appeared to suffer the most were the enactors, who had received little

training to help with the transition. Their overriding concerns were with the

u n a n s w e red cultural and procedural diff e rences, with many ® nding the lack of training

or guidance, combined with the impression of a glass ceiling, dif® cult to accept. The

interview findings echoed a company attitude survey which found that acquire d

managerial employees, while more pleased with Global in terms of individual re w a rd s ,

w e re far less pleased than Global employees in terms of career advancement: 41 per

cent of the acquired managers had unfavourable views on career prospects, compare d

with 29 per cent of Global managers. In addition, acquired managerial employees

reported that Global did not value the `diversity’ which acquired employees brought to

the company:

What I noticed after six months is that you were trying to join a tribe and

you didn’t have the right markings. I wouldn’t say that they are insular

but, like most tribal systems, they are quite happy to welcome most



people who they don’t know but have the right tribal markings. What

happ ens i f you don’ t hav e the right mark ings is that they don’ t

understand you and they are not pre p a red to make that effort because it is

not part of the corporate culture to do so. One of the problems a tribal

c u l t u re has is that it just doesn’t expect to have to indoctrinate you ± you

a re either part of the tribe and you belong or else you are not part of the

tribe, in which case you are not here. N e g o t i a t o r, Global

The overall feeling of the enactors especially was that Global management had

textbook HR policies on re s t ructuring and re d u n d a n c y, but bigger issues of managing

cultural integration never occurred to them ± a sort of arrogant blind spot:

They didn’t appear to have a game plan, they didn’t seem to be able to tell

you what their expectations were. In a way there was a problem in

c o m m u n i c a t i o n . . . t h e re seemed to be an inability to understand how you

communicated with people you have taken over who didn’t understand

the Global Company system. E n a c t o r, Global

Elements of expectations

Employee expectations are formed via whatever information is available in terms of

communication and management action. The more accurate communication available,

the greater the likelihood of expectations being based on management’ s intended

actions. If little communication is given, management’s actions may be interpreted in

any variety of means. Employees have to rely on picking up whatever information they

can ® nd, at which time they assess its believability and form an opinion. Management’ s

actions are then viewed in the context of these expectations, which are then con® r m e d

or modi® ed by them. Time also plays a role in the modi® cation of expectations, as the

longer the delay between any formal communication and subsequent action, the

weaker the link between the communicated message and expectations.

In the taped interviews, respondents repeatedly indicated that there were several

issues which were important in managing or moulding their expectations and their

judgement of events. Using key word and phrase analysis, seven categories of re s p o n s e

w e re identified which were seen as being critical in influencing the process of

managing employee expectations by the acquiring organisation: quality of

communication, believability of information, trust in management action, credibility of

leadership, fairness of action, consistency of action and communication and logic of

management action or behaviour. These reactions and beliefs are interwoven, with one

a ffecting the others, but yet remain distinct. Although we have focused on employees

in the target’ or acquired company, the reactions could often be traced to employees in

the acquiring company who also had similar concerns, especially where a full or partial

integration of functions was planned. Each of the seven responses is brie¯ y described,

with particular re f e rence to the two case studies analysed.

Quality of communication This was a major issue in both acquisitions. At Quality

G u a rding most of those enactors and many of the recipients interviewed reported that

t h e re had been insuf® cient communication in terms of both the amount and timing of

it. Because such a vital link of the expectation management process had been ignore d ,

the overall ability to manage expectations was greatly impaire d .

Global was unusual in that employees interv iewed generally felt that Global

communicated exceptionally well in terms of individual and group issues but poorly in

relation to cultural and procedural issues. To those employees who held the latter types



of concerns (negotiators and enactors), this was a major shortcoming; for re c i p i e n t s ,

this was not a major issue.

Believability of information In both cases, senior management publicly stated that,

following the acquisition, it was `business as usual’, giving the impression that nothing

would change in the foreseeable future and that people should not have concerns. A t

Quality Guarding this contradicted both the published intentions and track re c o rd of

the Service Conglomerate chairman, with the inconsistency of communication leading

to disbelief in many employees. In Global the message was that the company would

continue to trade under its own name, and the impression was given that it would be

l a rgely independent . In both cases, once these early promises were broken, top

management lost credibility and employees became wary of further pro n o u n c e m e n t s .

Trust in management action In both Quality Guarding and Global trust in the

o rganisation and its management was damaged by the way the acquisition process was

handled. At Quality Guarding trust was badly damaged in both the acquiring and the

a c q u i red company. This was due to the lack of accurate and timely communication and

the perceived unfairness and illogical nature of the subsequent changes. Trust at Global

was also damaged, to a lesser extent, by the lack of accurate communication but also by

the lack of sensitivity in dealing with procedural and cultural changes for enactors and

negotiators. Paradoxically, trust was enhanced by the fair way in which individual and

g roup concerns were addressed; this was seen most clearly in acquired re c i p i e n t s .

Credibility of leadership This suff e red in both Global and Quality Guarding due to

the miscommunication and subsequent actions. Particular events, such as Black

M o n d a y, or lack of action, such as dealing with cultural integration problems, had

wider interpretations, leading to doubts about the credibility and thus competence of

the management team. Actual and intended quit rates grew as a result. In both cases

management credibility suff e red initially from the `business as usual’ statements.

Quality Guarding’s management credibility suff e red from perceptions of illogical and

unfair behaviour, which only exacerbated these feelings. The view of Global

management was more complex; while the way in which it handled the personal and

g roup issues enhanced its (and the company’s) cre d i b i l i t y, the insensitivity toward s

p rocedural and cultural diff e rences decreased cre d i b i l i t y.

Fairness of action In the case of Quality Guarding the lack of communication, and

especially the handling of redundancies, led to the managing director being seen as

behaving unfairly, and his perceived management credibility suff e red because of it.

The feeling of `unfairness’ at Quality Guarding was one of the most notable examples

of the study and one of the most damaging to the company and its management.

C o n v e r s e l y, employees at Global Company were perceived as being treated fairly in

terms of redundancy and relocation but not in terms of explaining company

p ro c e d u res to `new’ employees. This paradox left those employees who held

p rocedural and cultural concerns (enactors and negotiators) confused, yet did not seem

to affect recipients who did not hold high concerns in these areas. The Global way held

out a promise of sophisticated career management and high commitment to HR

policies but, once the acquired management staff found it did not apply to them, there

was a profound sense of unfairness.

Consistency of action and communication The inconsistency of action and word was

a p p a rent at both Quality Guarding and Global, but more pronounced in the former.

P e rhaps this is because two scenarios were painted for Quality Guarding employees: one

by the managing director in direct communication ± `business as usual’ ± and another



reported in the media by the chief executive ± increased pro ® ts. When the latter was

p roven correct, the managing director suff e red in terms of cre d i b i l i t y. At Global, perh a p s

the distance of the chairman from the UK, combined with less severe re p e rcussions and

time since the acquisition, meant that the backlash was not as severe at Consumer Inc.

Logic of management action or behaviour The belief that Quality Guard i n g ’ s

management was acting in an illogical manner was caused by several events. Black

M o n d a y, the perceived inability to continue delivering a quality service to customers

and the role con¯ ict experienced in terms of the training levies all led to a feeling that,

if Quality Guarding valued its customer relationships, then it was acting in an illogical

manner by jeopardising them. In Global there were also feelings of illogical behaviour

related not only to the inability of management to acknowledge and allow for

d i ff e rences in pro c e d u res and cultures but also in persisting with seemingly illogical

management pro c e d u re s .

DISCUSSION

The two cases reported here found the acquisition process dif® cult. In each, there was a

lack of management concern with the formation of expectations and little consideration

of the consequences for employee attitudes. In the case of Global the re s e a rch was done

two years after the acquisition; the company had attempted a full integration, yet it had

patently failed to merge employees into a uni® ed organisation, despite the rhetoric of

the Global way.

In terms of our emerging model of employee expectations in acquisitions, we have

shown that these expectations do vary during the acquisition process. Immediate job

worries give way to wider cultural issues, but the failure to manage expectations in

the early period can cast a long shadow over subsequent attitudes towards the

company management. This varies according to the position of the employee.

Recipients were genera lly much less worried about the consequences of the

acquisition once job security was established. In a sense, since they were not invited

to invest emotionally in the organisation, eg by not having career expectations, they

were largely undisturbed by organisational politics. Almost the reverse occurred for

the enactors, and the small-scale attitude survey con® rmed that both management

groups had considerable worries about organisational culture and the way they ® tted

into the new organisation. The degree of organisational integration, as indicated

above, did influence the process. We had expected employees in full-integration

acquisitions to have greater short-term job worries but this was not the case. In

practice the worries emerged later and were focused on procedural and cultural

issues ± arguably the hardest to manage. We suggested that employees would have

dual expectations about the effect of the acquisition both on the individual ± `me’ ±

and the group ± `us’ ± at the point of transfer and subsequently after the acquisition.

This was certainly the case, but our interviews showed that the group dimension was

particularly strong.

Issues such as believability of information, fairness of action, consistency of action

and logic of management action or behaviour played a far greater role than originally

anticipated. While communication served as the foundation for the remaining factors,

t rust and management credibility were also end results. Not only did these factors serve

to facilitate expectation management when they were present, they were enhanced when

the process was executed successfully; conversely, when the process was mismanaged,

employees at all levels questioned their management’s ability. It was not necessarily the



actions taken by management which precipitated these reported results; the way in which

actions were conducted and explained to employees appeared to be most important. In

other words, it wasn’t the message that caused offence, it was its delivery.

The vast majority of employees we interviewed at all levels wanted to know the

vision, the way forward for the newly-acquired company and where they ® tted in’ . It

a p p e a red that, once the plan for the company was known, beyond the initial hype, and

their own position was made clear, employees were reasonably secure and willing to

continue in their work capacity. It was almost as if they needed to rationalise the

changes in their own minds ± any additional information provided accelerated that

p rocess. This was especially critical for enactors, as they had to sell the changes to their

s u b o rdinates. If they understood and believed in the changes themselves, they

reportedly found this process easier. In cases where did this not happen, and low tru s t

had developed, it was much harder for employees to accept the plan as they were

sceptical about company announcements ± a typical product of low-tru s t

e n v i ronments. In these cases, as we have shown in the two cases reported brie¯ y here ,

intention to leave was high and the credibility of management low.

Acquisitions constitute a likely breach in the psychological contract in a particularly

complex and multi-faceted way. It is not just the relationship between the individual

and his or her employer that is at stake; a replacement owner and the ex-employees of

another company are involved, and disruption to groups of employees and

o rganisational cultures as experienced by them in the past and the present takes place.

It is particularly difficult to generate employee trust in these circumstances, yet

Robinson shows this to be crucial if the negative reaction to unmet expectations is to be

subdued: `The lesson for managers is to learn how to navigate ... changes in a way that

p reserves employees’ sense of trust.’ (Robinson, 1986: 597) The dual sets of expectations

change during the course of the acquisition process, vary between types of people

a c c o rding to their roles in the old and new organisation and are intensi® ed when the

post-acquisition strategy involves full integration spatially, functionally and culturally.

In this complex management process the management of employee expectations can

easily be mishandled or ignored as the ® nancial, legal and strategic issues dominate

senior executives’ attention. The inability to achieve post-acquisition integration is

widely cited as the prime cause of acquisition failure. Mismanagement of employee

expectations and its consequences are likely to be a major contributory factor to this

unhappy outcome.

Acknowledgements

We are grateful to two anonymous re f e rees for their helpful comments, and to the

L e v e rhulme Foundation which funded the re s e a rc h .

Note

1. Full details and analysis of the ® ve cases are reported in Hubbard (1997).

Editor’s note

This article was ® rst submitted to H R M J in December 1998. It was substantially re v i s e d

and resubmitted to the then editor in June 2000, but it could not be fitted into the

J o u r n a l b e f o re the change of editorship. To ensure objectivity, given that one of the

authors is the new H R M J e d i t o r, two members of the editorial board were asked to

decide if it should be published.



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