mergers and group status: the impact of high, low and equal group status on identification and...

Mergers and Group Status: The Impact of High,Low and Equal Group Status on Identification andSatisfaction with a Company Merger, ExperiencedControllability, Group Identity and GroupCohesion

PETER FISCHER*, TOBIAS GREITEMEYER, SUAT ILKAY OMAY

and DIETER FREY

Ludwig-Maximilians-University, Munich, Germany

ABSTRACT

Although mergers are seen as tools to enhance business in today’s global marketplace, they have had

a low success rate, possibly because the focus has been on financial and legal issues rather than on the

human factors involved. In this respect, focusing on the social psychological variables, social identity

theory can provide an explanation for the failure of most mergers. An experiment based on this theory

involving mergers between two workgroups was conducted to investigate the effects of merger-

related status on participants’ psychological responses to the mergers. Thirty-six small groups were

assigned to three different status groups (high, low and equal status groups) using the minimal group

paradigm. Most negative responses to the merger—in terms of identification with the merger group,

satisfaction with the merger, common in-group identity, group cohesion and controllability—were

given by the members of the low status groups. Contrary to expectations, status was not related to the

performance of the groups. Theoretical and practical implications are discussed. Copyright # 2007

John Wiley & Sons, Ltd.

Key words: merger; group status; social identity; controllability; group cohesion; identification;

satisfaction

INTRODUCTION

In his article ‘Anatomy of Merger’, Joslin (1990) states ‘In today’s business environment,

almost everyone can expect to experience at least one merger or acquisition’ (p. 25).

Representing one of the basic means of global expansion, mergers and acquisitions is

rapidly becoming one of the most common corporate events taking place. In the literature,

Journal of Community & Applied Social Psychology

J. Community Appl. Soc. Psychol., 17: 203–217 (2007)

Published online 31 March 2007 in Wiley InterScience

(www.interscience.wiley.com). DOI: 10.1002/casp.874

*Correspondence to: P. Fischer, Department of Psychology, Social Psychology Unit, Ludwig-Maximilians-University, Leopoldstrasse 13, 80802 Munich, Germany. E-mail: [email protected]

Copyright # 2007 John Wiley & Sons, Ltd. Accepted 24 May 2006

the factors cited as underlying these sharp increases in mergers and acquisitions are,

increased global competition, rapid technological change, government deregulation and

demand for cost-cutting measures (Marks, 1994). However, despite this ‘merger mania’

and the detailed assessments made during the pre-merger feasibility studies, the majority of

these mergers fail to reach their financial expectations (Cartwright & Cooper, 1993). For

example, in an analysis of eight mega-mergers in the U.S. banking industry during 1987–

1996, Bae and Aldrich, (2000) have found that only three of the eight large-scale mergers

of banks are viewed as successful. Similarly, Senn (1989) points out that one-third of

mergers fail within 5 years. This leads to some very important questions, such as why do

mergers often fail to meet expectations? In order to answer this question, recent research

mostly concentrated on the financial, legal and strategic issues. However, the social

psychological side of mergers can also provide a possible explanation for many of these

failures. More specifically, we hypothesize that differences in group status between the

merger groups is one major determinant of psychological reactions to and acceptance of the

merger.

Mergers are defined as an agreement between the boards of directors of two

companies to combine; acquisitions are defined as the purchase of one firm by another

(e.g. Raquib, Musif, & Mohamed, 2003. Given this definition, it can be stated that

mergers are characterized by two equal status workgroups, whereas acquisitions are

characterized by two differing status workgroups. However, in reality, mergers as well

as acquisitions are followed by implicit or explicit status differences between the two

merging companies. For example, one group is economically more successful, has more

employees, or at least has more powerful leaders than the other company. To date,

studies focusing on psychological factors related to these power differences are limited

and mostly conducted in the field without experimental control over group status. It is

from within this perspective that the present study asks, ‘how does the imbalance of

power in mergers and acquisitions affect employees’ psychological reactions, and in

turn, the success of mergers?’

Social identity and group status

Since most of the explanations addressing the human side of mergers are based on

intergroup relations, social identity theory (SIT; Tajfel & Turner, 1979, 1986), which

explains intergroup relations from a group perspective, is a useful framework for analyzing

the effects of different merger status on merger-related social psychological variables.

According to SIT, an individual’s self-concept consists of a personal identity and a social

identity, whereas the latter is derived from knowledge about social reference groups. With

regard to social identity, people define themselves and develop self-esteem by intergroup

comparisons, that is, they compare attributes of their own reference group with attributes of

other out-groups. In this sense, an important part of self-definition is derived from the

groups to which we belong. SIT explains the factors that underlie this comparison process

as ‘the desire of people to have a positive self-image’, in other words, ‘a positive social

identity’. Since the self is defined in terms of group membership and there is the desire for a

positive view of ourselves, consequently we either attempt to join groups that enhance our

image, or we distinguish our own group from other groups to see our own group as good.

By increasing the differences between in-group and out-group, we perceive the in-group in

Copyright # 2007 John Wiley & Sons, Ltd. J. Community Appl. Soc. Psychol., 17: 203–217 (2007)

DOI: 10.1002/casp

204 P. Fischer et al.

a more favourable light. At the same time, we enhance the status both of our own group in

comparison with other groups and the status of the self.

With regard to self-esteem and self-concept, people are motivated to belong to high

status groups (Tajfel & Turner, 1979). As membership in low status groups would fail to

provide members with a positive social identity, members of these groups seek to gain

membership in a high-status group or to change their group status. In contrast, members of

high-status groups seek to maintain both their membership in the high-status group and the

existence of the social category. These behaviours are motivated by a desire to maintain and

enhance the positive contribution that the identity makes to their self-concept (Ellemers,

Doosje, van Knippenberg, & Wilke, 1992, van Knippenberg & Ellemers, 1993). This line

of reasoning is supported by several laboratory and field studies in which high-status group

members typically identify strongly with, and show pride in their group and seek to

maintain their position within the group (Ellemers, van Knippenberg, & Wilke, 1990). In

contrast, membership in low-status groups threatens the self-concept, which might result in

more negative responses on merger-related social psychological variables (Ellemers,

Wilke, & van Knippenberg, 1993).

Merger group status and psychological responses to the merger

Derived from previous research and viewed within the context of SIT, the psychological

impact of group status on merger-related social psychological variables could be explained

both from (a) the perspective of the low status merger group and (b) the perspective of the

high status merger group. First, concerning the perspective of low status merger groups,

SIT helps to explain why low status group members resist mergers. A merger can be

constructed as a re-categorization of two social groups as one new group (van Knippenberg

& van Leeuwen, 2001). In this respect, mergers force groups to abandon parts of their old

social identities, and by imposing new group memberships on workers, they alter the social

categorization process. As a reaction to this change in social identity, members may cling

to their old social identities and reject the new one, thereby giving rise to negative

psychological responses that put the success of mergers at risk. For example, field studies

have shown that the tendency to identify with the in-group and discriminate against the out-

group is greater when the group and its distinctiveness are threatened (e.g. when perceived

intergroup similarity increases; Jetten, Spears, & Manstead, 1998). Over the course of a

merger, the pre-merger identity is relinquished for the new identity. From this perspective,

mergers between two different workgroups can be seen as a threat to group distinctiveness.

Moreover, it has been shown that mergers are likely to heighten the salience of those group

boundaries that will be affected and expanded by the merger (Gaertner, Dovidio,

Anastasio, Bachman, & Rust, 1993). With this increase in salience, it seems plausible for

the employees of the low status group to be more threatened by the merger situation. As a

result, to protect the self-esteem that is threatened by the merger, these low status group

members would try to maintain the boundaries between groups by favouring the in-group

over the out-group, and would overall show more negative responses to the merger than

employees of the high status group.

Second, the impact of group status on psychological responses to a merger could also be

analysed from the perspective of the high status merger group. With regard to this

perspective, predictions can be derived from the ingroup projection model of Mummendey

and Wenzel (1999): Based on the SIT’s assumption that group members strive towards a


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Psychological responses to differences in merger group status 205

positive social identity, the in-group projection model assumes that groups are prone to

generalize attributes and positions of the in-group to expected attributes and positions of

the outgroup. Thus, the ingroup claims to be more prototypical for an inclusive (general)

category and thus feels superior compared to the relevant outgroup (see also Bourhis &

Giles, 1977). In the context of mergers, this projection of in-group attributes should occur

in a more pronounced way when status differences exist between the two merger groups:

The high status group defines group and organizational norms (and thus reality) more

strongly, which might result in an increased projection (and generalization) of positive in-

group-attributes as well as an increased feeling of superiority over the low status group. As

a consequence, high status groups might exhibit more positive psychological responses to a

merger than low status groups.

To sum up, we expect a positive link between group status and psychological response to

mergers: High status merger groups should react more positively and/or less negatively to a

merger than low status merger groups. As mentioned above, this expected effect could be

due to both a more negative response to the merger of low status merger groups and/or a

more positive reaction to the merger of high status merger groups. In the following, we

explain which social psychological variables are expected to be affected by differences

resulting from merger group status.

Psychological variables affected by merger-related status differences

Derived from previous research and theorizing, we suggest that five social psychological

variables are significantly affected by differences resulting from merger-related status.

Moreover, these variables can be clustered into three subtypes, that is (a) the evaluation of

the merger itself (identification and satisfaction with the merger), (b) merger-related group

processes (group cohesion and group identity), and (c) individually perceived control. In

the following we will outline these variables in more detail.

Identification and satisfaction with the new merger group. From the SIT perspective,

identification with the new (merged) organization and satisfaction with the merger are

among the most important factors affecting the success of mergers. According to Mael and

Ashforth (1992), organizational identification reflects ‘the perception of oneness with or

belongingness to an organization where the individual defines him or herself in terms of the

organization(s) in which he or she is a member’ (p. 104). However, mergers force workers

to abandon their pre-merger identity and impose a new group membership, which could

represent an existential loss for them.

In mergers, the identification process is usually problematic because there is a tendency

to adhere to the old organizational identity. This is especially true of low status group

members. As SIT proposes, employees of the low status merger group cling to the pre-

merger identity to protect their self-esteem that is threatened by the merger situation.

Unfortunately, this acts to fuel the ‘us versus them’ mentality, and thus jeopardizes the

merger itself. This tendency of the low status group has also been verified by some studies

that examined the role of organizational dominance on identification. One such study was

conducted by van Knippenberg, van Knippenberg, Monden, and de Lima (2002): In a

survey of the employees of an administrative organization of a merged town government,

they concluded that identification with the post-merger organization was at stake for

members of the dominated group, whereas the level of identification was found to be much

higher for the dominant group. Similar results were also obtained in studies of a merger


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between two airlines (Terry, Carey, & Callan, 2001) and between two scientific

organizations (Terry & O’Brien, 2001). In both studies, employees of the low status pre-

merger organizations were found to be less strongly identified with and less committed to

the new organization than the high status employees. In addition, research on satisfaction

with the merger also points to similar findings. In a study of 2845 employees of a merged

manufacturing company, Covin, Sightler, Kolenko, and Tudor (1996) found that

employees of the acquired firm had lower levels of satisfaction with the merger than

employees of the acquiring firm.

Common in-group identity and group cohesion. A body of research suggests that

common in-group identity is of crucial importance for intergroup relations within the

merged organizations (e.g. Gaertner & Dovidio, 2000; Gaertner et al., 1993). What is

actually meant by ‘common in-group identity’, also sometimes referred to as

‘organizational entitavity’ (van Knippenberg & van Leeuwen, 2001), is the extent to

which a merged organization is perceived as a single entity rather than as two distinct

entities. As mentioned before, the ‘us versus them’ mentality among the merged

organization’s employees suggests that mergers are likely to elicit intergroup biases and

intergroup conflict. In a merger context, then, higher organizational entitavity should result

in lower distinction between the two partners, and thus, in turn, in lower intergroup biases.

Direct evidence for this proposition comes from the studies of Gaertner, Dovidio, and

Bachman (1996) showing that the perception of the organization as one single group

attenuates intergroup biases in evaluations of the merger partners. Their results are also

consistent with laboratory research in which they conclude that more positive feelings

toward out-group members are mediated by the extent to which people are perceived as

belonging to one group (Gaertner et al., 1993).

According to Gaertner, Bachman, Dovidio, & Banker, 2001), this development of a

common in-group identity helps form a basis for more harmonious intergroup relations,

which is literally called ‘group cohesion’. Mainly reflecting the feelings of attraction

among group members, group cohesion is also a crucial element for the functioning of an

organization, in the sense that it may strengthen positive social identity (Doosje, Ellemers,

& Spears, 1995). Terry and O’Brien (2001) showed that the most negative responses to the

merger are apparent among the employees of the low status pre-merger organization. In the

same study, they also concluded that the low status employees were less likely to perceive a

common in-group identity than the high status employees. Given these findings, it would be

reasonable to state that an existence of such a perception of ‘us’ and ‘them’ in the company

can lead the merger towards failure.

Experienced controllability. Another important factor, which has to be considered in

the context of high and low group status in mergers is the experience of controllability

of the work situation. According to Jemison and Sitkin (1986), what happens in a merger

is that one group secures control of the other group’s tasks. Seen from this angle, members

of the low status group suffer from lack of control, whereas members of the high status

group do not experience such a loss (see also Greitemeyer, Fischer, Nurnberg, Frey, &

Stahlberg, in press) or even experience a higher sense of control.

In general, task control, in some studies also referred to as job autonomy, is ‘the ability to

exert influence over one’s environment so that the environment becomes more rewarding

and less threatening’ (Ganster, 1989, p. 3). In this sense, individuals with job autonomy

(high status groups) have the ability to influence the scheduling and planning of tasks, and

the methods to be used in carrying out these tasks.


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THE PRESENT RESEARCH

As all the above literature shows, mergers and acquisitions can have numerous outcomes

on employees, which seem to vary depending on the status of the merger groups. Although

there are a considerable number of studies that examine the general effects of mergers,

research is limited concerning psychological responses associated with differences

resulting from merger-related status. Though there is support for the hypothesis that low

status groups are more negatively affected by the merger than high status groups, it is

important to keep in mind that most of these studies are based on real-world data from field

experiments and therefore suffer from the problems of quasi-experimental research (e.g.

threat to internal validity by third variables). In addition, previous research placed less

emphasis on merger-related psychological responses of high status groups. Because

previous research mainly did not involve equal status merger groups, it was not possible to

figure out whether different psychological responses to a merger of high and low status

groups could be traced back to psychological processes within the high and/or low status

groups. For example, in the context of an airline merger, Terry, Carey, and Callan (2001)

found that negative effects of the merger were most pronounced within the low status merger

group. However, because therewas no equal status control group, the authors cannot definitely

state that this effect was due to a more negative reaction of the low status merger group and/or

a more positive reaction of the high status merger group. On that score, the present study adds

to this research field by employing an equal status control group and thusmaking it possible to

determine whether the expected effect of group status differences on psychological response

to a merger is due to the low and/or high status merger groups.

Taking an experimental approach with high, low and equal status merger groups, we try

to overcome the problems of previous research by creating a real-life situation where the

merger status is under experimental control and therefore the effects of status differences

on psychological variables can be interpreted causally. Moreover, the psychological

processes associated with group status differences could be distinguished either in the high

or low status merger groups. In the study, manipulating the status of the two merging

groups either as ‘equal & equal’ or ‘high & low’, we tried to simulate a merger and an

acquisition situation and examine the effects of status on employees’ psychological

responses. We expect that members of high status groups report higher levels of

identification and satisfaction with the merger, stronger common in-group identity and

group cohesion, as well as a higher level of experienced controllability of the work

situation than members of low status groups.

Method

Participants and design. Eighty-two students of the University of Munich participated

in this experiment to receive credit in a social psychology class (45 men and 37 women).

Ages ranged between 19 and 31 (M¼ 23.02, SD¼ 2.68). Each experimental session took

between 45 and 60 minutes. The study was based on 3 (group status: low vs. equal vs.

high)� 1 factorial between-subjects design.

Procedure

Subjects participated in the study in groups of two or three, which were created on the basis

of an ostensible test developed by Hertel and Kerr (2001). Before the experiment began,


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participants were informed that they were involved in a study concerning how people

mentally arrange perceptual elements. They were told that there are two different pre-

dispositional types of arranging these elements, namely ‘shape dependent’ and ‘shape

independent’. In order to find out what kind of perceptual representatives they could be

classified as, they were given a test of representation styles in which they had to sort sets of

symbols (e.g. letters, stars) in rows according to a perceptual feature they believed to be

most prominent (five symbols in each set). After all the participants were finished with the

test, sheets were collected and they were given a questionnaire that asked for demographic

information (age, gender, subject). When participants had completed the form, the

experimenter purportedly checked the test of representation style, and gave them oral

feedback on whether they were shape dependent or shape independent representatives. In

actual fact, the assignment to minimal groups was made randomly within each session.

After group formation, one group was taken to another room. To create entitavity within

groups, each group was asked to think of a group name and to write it on a badge for each

member to wear on their clothes. Next, groups were assigned to their first performance task

called the ‘Death Statistic Task’ (cf. Johnson & Johnson, 2002). Participants were asked to

work on the task as a group, and their duty was to rank 15 fatal hazards in order of

harmfulness according to the death toll reached each year. In addition, before they began,

participants were informed that they would receive a group-level feedback about their

performance in comparison to other groups. When the two groups finished this task, they

were taken back to the same room with the information that they were going to be merged.

Before participants received the next performance task, they were given the group-level

feedback on the groups’ relative performance on the ‘Death Statistic Task’. This (false)

feedback was actually the status manipulation of the experiment. Accordingly, there were

two different experimental conditions in the study. In the unequal status condition having

both a low and a high status group, participants learned that one of the groups performed

better than the other. In these conditions, the name of the newly merged group would be the

name of the high status group. Thus, members of the low status group were asked to replace

their old badges with the new group ones. In the other, equal status condition, participants

received a (false) feedback that both groups had performed equally well. Therefore, the

newly merged group’s name would be a composite name of both groups (e.g. when Group

X and Group Y merged, Group XY was formed). Consequently, each participant in the

equal status condition replaced his or her badge with the new group nametag.

After the status manipulation, participants of both merged groups were asked to work

together on the ‘Winter Survival Problem’ (Johnson & Johnson, 2002) as a newly merged

group. The problem required participants to imagine themselves as passengers in a small

plane that crashed in the wilderness during a winter storm. Participants were told that the

pilot and the crew of the plane were dead; that the plane’s exact location was unknown; and

that 12 items (e.g. a compass, hand axe) had been salvaged from the wreckage. Participants

of the merged groups were asked to rank order these items in terms of their potential

survival value. Participants were instructed to jointly solve this task as a group and to come

up with only one group solution to the problem. As soon as the merged group reached an

agreement on the ratings, participants were given a questionnaire in which the main

dependent measures were sampled individually.

The dependent measures consisted of standardized scales measuring identification with

the merger group (7 items; a¼ 0.87; e.g. ‘I feel strong ties with the new group’; cf. Abrams,

Ando, & Hinkle, 1998), satisfaction with the merger (4 items; a¼ 0.79; e.g. ‘My pre-

merger group has been strengthened by the merger between the two groups’; cf. Buono,


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Bowditch, & Lewis, 1985), common in-group identity (4 items; a¼ 0.86; e.g., ‘During the

last task, despite the different divisional backgrounds, it feels as though we are all just one

group’; cf. Gaertner et al., 1993), group cohesion (4 items; a¼ 0.88; e.g. ‘Towhat extent do

you think that the new group forms a unit?’; cf. Scheepers, Branscombe, Spears, & Doosje,

2002) subjective controllability (4 items; a¼ 0.67; e.g. ‘I had little control over things that

happened to me during the last task’; Pearlin & Schooler, 1978). Furthermore, we

measured performance of the two ranking tasks and working time on these tasks. For all

tasks, each groups’ score was the sum of the absolute values of the differences between

their rankings of the concerned items and the survival experts’ rankings of those items.

Higher scores thus indicated worse performance. Working time was measured by the

experimenter, who operated with a hidden clock. Finally, after participants finished the

dependent measures, we conducted a manipulation check of group status by asking

participants on a scale from 0 (very low) to 100 (very high) about the group status of the

high status (shape independent) group.

After participants finished answering the dependent measures and the manipulation

check, the experiment was over. They were carefully debriefed about the real aim of the

experiment, and in particular were told that the performance feedback in order to

manipulate group status was fictional and randomly assigned rather than an indicator of

real performance. Participants received their credit for experimental participation, were

thanked for participation, and dismissed.

Results

Manipulation check. As a manipulation check, participants were asked about their

perception of the high status group (shape independent group). A oneway-ANOVA

revealed a significant main effect for group status, F(2, 79)¼ 42.97, p< 0.001, h2¼ 0.52.

LSD post hoc tests revealed that both members of the high status groups (M¼ 80.00,

SD¼ 14.87), p< 0.001, and members of the low status group (M¼ 73.89, SD¼ 15.71),

p< 0.001, ascribed higher group status to the shape independent (high status) group than

members of the equal status group (M¼ 48.57, SD¼ 8.48). In addition, the high status

group members ascribed marginally higher status to the high status group (shape

independent) than members of the low status groups, p< 0.10. Furthermore, members of

the equal status shape dependent (M¼ 49.64, SD¼ 7.96) and shape independent groups

(M¼ 47.50, SD¼ 9.15) did not differently assess the status of the shape independent

merger group, F< 1. To sum up, the manipulation of group status was successful. All

further analyses were conducted on a group level with 12 low status groups, 12 high status

groups and 12 equal status groups. The group size (2 vs. 3 group members) had no

differential effect on the dependent variables, F< 1.

Performance. A 3 (group status: low vs. equal vs. high)� 1 factorial analysis of

variance with performance (work/time) before the status manipulation (merger) revealed

no significant main effect, F< 1. In addition, after the status manipulation (merger), no

significant difference occurred between merger groups with different status and merger

groups with equal status regarding performance, F< 1.

Psychological variables. Means and standard deviations are shown in Table 1. A 3

(group status: low, equal, high)� 5 (controllability, identification, satisfaction, common in-

group identity, group cohesion) factorial multivariate analysis of variance (MANOVA)


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revealed a significant main effect for group status, multivariate F(10, 60)¼ 5.34, p< 0.001,

h2¼ 0.47. Univariate follow up analyses and post hoc tests (LSD) revealed a significant

main effect of group status for subjective controllability, F(2, 33)¼ 8.56, p< 0.01,

h2¼ 0.34, indicating that high status groups (M¼ 4.69) experienced more control over the

merger than low status groups (M¼ 4.15; p< 0.01) or equal status groups (M¼ 4.32;

p< 0.02). Furthermore, the analysis of the experimental design yielded a significant main

effect for identification with the merger, F(2, 33)¼ 18.12, p< 0.001, h2¼ 0.52. High status

groups (M¼ 2.94) reported a stronger identification with the merger than low status groups

(M¼ 2.31; p< 0.001) and equal status groups (M¼ 2.47; p< 0.001). In addition, a

significant main effect of group status was found for satisfaction with the merger, F(2,

33)¼ 9.46, p< 0.01, h2¼ 0.37, indicating that high status group members (M¼ 3.86;

p< 0.001) were more satisfied with the merger than low status group members (M¼ 3.29;

p< 0.001) and marginally more satisfied than equal status group members (M¼ 3.61;

p< 0.06). Low status groups were also less satisfied than equal status groups (p< 0.03).

Next, a significant main effect of group status was obtained for common in-group identity,

F(2,33)¼ 9.69, p< 0.001, h2¼ 0.37. High status groups (M¼ 5.35) reported a higher

common in-group identity than low status groups (M¼ 4.05; p< 0.01) and equal status

groups (M¼ 3.51; p< 0.001). Finally, a significant main effect of group status was found

for group cohesion, F(2, 33)¼ 4.71, p< 0.02, h2¼ 0.22. High status groups (M¼ 72.19)

reported higher levels of group cohesion than low status groups (M¼ 64.24; p< 0.01) and

marginally higher levels than equal status groups (M¼ 66.98; p< 0.06).

DISCUSSION

Taken together, the results of the present study provide support for the assertion that

merger-related status plays an important role in the responses given to a merger situation,

and that these responses can be better understood from the perspective of SIT and the

associated in-group projection model (Mummendey & Wenzel, 1999). As predicted,

members of the low status groups reported lower levels of (a) identification with the merger

group, (b) satisfaction with the merger, (c) common in-group identity, (d) group cohesion,

and (e) controllability than members of the high status groups. These results are in

agreement with previous field studies, which however, did not experimentally control

group status. As a consequence, our study provides support for the findings of previous field

research, and indicates that the effects of status differences on the reported psychological

variables are in fact caused by status differences rather than by unknown third variables.

Table 1. Means and standard deviations (in parentheses) of the psychological variables as afunction of the different merger group status

Mergerstatus

Dependent Variables

Mergeridentification

Mergersatisfaction

Experiencedcontrol

Groupcohesion

Commonin-group identity

Low 2.31 (0.20) 3.29 (0.29) 4.15 (0.44) 64.24 (4.67) 4.05 (1.36)Equal 2.47 (0.33) 3.61 (0.41) 4.32 (0.24) 66.98 (5.15) 3.51 (0.85)High 2.94 (0.26) 3.86 (0.26) 4.69 (0.28) 72.19 (8.73) 5.35 (0.87)


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Moreover, the present research also revealed that the impact of group status on

psychological response to a merger is due to both (a) increased positive reactions by the

high status group members and (b) partially decreased positive (increased negative)

reactions by the low status group members, whereas the main part of the effect seems to be

due to the high status merger groups (direction of effects were determined by comparing

the high and low status groups with the equal status groups). A significant difference

between the low status and the equal status group only occurred in terms of satisfaction

with the merger. In contrast, significant differences between high and equal status groups

were obtained for all five psychological variables employed in this study. This pattern of

results supports the predictions of the in-group projection model of Mummendey and

Wenzel (1999) from which we derived that status differences might increase positive

reactions of high status group members (compared to equal status groups), because of the

tendency especially of high status groups to overstate and overgeneralize their own

strengths and positive attributes, and thus feel superior to the low status groups.

Implications of the Present Research for Merger Success

Is the differential impact of group status on psychological responses important for

organizational behaviour and thus for the success of mergers? We think it is for several

reasons. Regarding levels of identification and satisfaction, several studies have shown that

higher levels of identification lead to more actions that are favourable to the organization,

such as in-group cooperation (Kramer, 1991), organizational citizenship behaviour

(Dutton, Dukerich, & Harquail, 1994), support for the organization (Mael & Ashforth,

1992) and lower likelihood of labour turnover (Abrams et al., 1998). Thus, in a merger,

employees who do not identify with the new organization might be viewed as a threat to the

future viability of the company. On that score, van Knippenberg and van Leeuwen (2001)

suggest that the differences in the level of identification between high and low status groups

are due to differences in the sense of continuity they feel. As the merged organization is

more likely to be shaped in the image of the dominant organization, high status members

correspondingly see themselves as members of an organization that is very similar to their

pre-merger organization, and thus their satisfaction with the merger is higher. By contrast,

employees of the dominated organization are more likely to find themselves in an

organization that is quite different from their own pre-merger organization. As a result,

employees of the high status groups are more likely to have a sense of continuity than

employees of the low status group, which affects the post-merger identification process and

their satisfaction level positively. The results of our present study support this line of

argumentation: high status groups reported higher identification and satisfaction with the

merger than low and equal status groups. Moreover, low status groups reported lower levels

of satisfaction with the merger than equal status groups.

Regarding common in-group identity and cohesion, in two surveys of merged

organizations, van Knippenberg et al. (2002) concluded that organizational entitavity is

related to identification with the company. In addition, the development of a common in-

group identity is also shown to positively correlate with the effectiveness of task solutions

(Gaertner et al., 2001). Moreover, in terms of effectiveness and productivity, cohesion

seems to play an important role. Support for the proposition comes from a military context,

in which Manning and Ingraham (1987) obtained a correlation between battalion cohesion

and measures of performance effectiveness. In accordance with this, the meta-analytic


DOI: 10.1002/casp


conclusion of Mullen and Copper (1994) shows that cohesiveness significantly predicts

group productivity. In this respect, employees who perceive the merged organization as

two distinct groups and do not develop a sense of cohesion among colleagues put the

successful continuation of the organization at risk. Quasi-experimental studies on the issue

have shown that such situation is usually created by employees of the low status group. The

present research revealed that this argumentation is also valid in a controlled experimental

context: high status merger groups exhibited higher in-group identity and group cohesion

than low and equal status merger groups.

Finally, with regard to controllability, several researchers have found that low control

over work, the workplace and employment status are one of the most common causes of

stress and critical health for many employees (e.g. 3rd European Survey on Working

Conditions, 2000; Spector, 1986). Similarly, in other studies it was found that workers who

are not able to exert control over their work are more likely to experience work stress and

anxiety (Archer, 1979), and thus are more likely to have impaired health such as depression

or heart disease (Karasek & Theorell, 1990). With all these findings in hand, controllability

can be said to play an important role in explaining merger success. On that score, Pfeffer

(1981) raises this issue and proposes that, because of the greater control the acquiring (high

status) firm has over critical economic and information resources, acquired (low status)

firm employees perceive themselves to be in a situation of diminished power. Similarly,

Cartwright and Cooper (1993) state that the more the autonomy is restricted, the more

likely the acquired executives will feel dominated by, and inferior to the acquiring

executives and therefore the likelier it is that clashes will arise. In this sense, perceived

control can act as a basic psychological mechanism and mediator determining the

outcomes of mergers. In the present research, the difference in experienced controllability

between high and low status group members was mainly due to the high status group. No

difference was found between the low status and the equal status merger groups. Hence, the

experience of control in the context of mergers seems to be mainly associated with the

experience of high status.

Limitations

First of all, our results are important in the sense that they help to clarify the effects of group

status on several social psychological variables in the context of mergers. These variables

had thus far been mainly investigated under field conditions rather than under controlled

experimental conditions. However, seen from a different angle, our study has also several

limitations that should be taken into consideration. The first issue concerns the

methodology. Although the design allowed us to control several concerns that usually

bedevil field studies—such as possible response bias or survivorship bias—this control, of

course, came at the price of reduced generalizability.

Second, in contrast to the impact of group status on the psychological variables

measured in the present study, no effect of group status was found on group performance

during the merger. As the most negative responses to the merger were expected to be given

by the members of the low status groups, it was predicted that this negativity would also

affect the performance of unequal status merger groups negatively. However, a null effect

of group status on group performance was obtained. This null-effect is not completely

counterintuitive as it seems: If one assumes that the work of the high status groups

improves and that of the low status groups deteriorates, these differences are evened out by


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computing the mean value. Because no net difference arises, this may explain the obtained

null effect. Though merger groups did not perform differently, significant differences were

measured for several important psychological variables. These might lead to a change in

performance over the long run. It will be the task of future research to investigate long-term

effects of status differences on merger success both in the lab and in real-life conditions.

Finally, in the present research, the impact of merger group status on psychological

response was mainly due to the high status merger groups. Whereas high status groups

differed on all five social psychological variables from equal status merger groups, low

status groups only significantly differed from equal status groups with regard to satisfaction

with the merger. Although this result is still in line with the SIT based in-group projection

model of Mummendey and Wenzel (1999) postulating that (especially high status) groups

overgeneralize their positive attributes, previous field research (e.g. Greitemeyer et al., in

press) led us to expect that the effect of group status on social psychological variables

should be mainly due to the low status merger groups (because they are most negatively

affected by the merger). One reason for this somewhat unexpected finding could be that the

status manipulation employed in this laboratory setting differs from status differences as

they occur in other contexts. In contrast, it might be a rather positive experience also in the

experimental laboratory to receive positive feedback about the own group performance,

which might have caused that the effect of group status on social psychological variables

was mainly due to the high status groups. On that score, future research should seek to

identify moderating variables and situations, which could be responsible for the effect of

status differences on psychological responses.

CONCLUSIONS AND FUTURE DIRECTIONS

Generally, the results of the present research provide support for the SIT as well as for the

SIT based in-group projection model (Mummendey & Wenzel, 1999) and its use in

understanding the failure of mergers. Mergers have thus far been primarily investigated in

terms of strategic, financial and operational perspectives; the social perspective and the

human factors that have been central to our research have usually been neglected in

empirical studies. According to Hunt (1987), the personnel factor was only considered in

one-third of all mergers he investigated: Management often overlooks the fact that human

resources issues can actually cause a merger to fail. Our research recommends giving more

attention to psychological variables when investigating or predicting the success of a

merger. In addition, at a practical level, the present research has important implications for

management undergoing restructuring of this kind. Clearly, the management of both the

dominant and less dominant organization should be aware of the status differences that

exist between two merging groups. By treating both groups as equal partners, the acquired

firm’s employees would feel greater acknowledgement and may becomemore motivated to

contribute towards the success of the merger. Moreover, the high status groups would feel

less superior towards the low status group. In this respect, managers should engage in

efforts to minimize the effects of status differentials by creating an acceptable new culture

where, for example, group cohesion is encouraged and relevant levels of controllability are

given to all employees, thereby promoting identification with the new organization. For the

employees of both partners, efforts need to be directed toward creating a common in-group

identity to make them perceive the new organization as a single, superordinate group and to

increase their commitment (Gaertner et al., 2001). Besides paying at least as much as


DOI: 10.1002/casp


attention to the human side of mergers as to the strategic side, a careful pre-merger

planning for reducing the negative psychological responses associated with the merger

represents an important practical suggestion. Indeed, several studies show the potential

positive impact of providing employees with a realistic merger preview (Schweiger &

DeNisi, 1991).

Finally, our study raises a number of possible issues for future research: Besides

including more realistic aspects of real-world mergers, future research should also utilize a

longitudinal approach to capture the dynamics of mergers. For the moment, it can only be

concluded that status differences are essential, but the interplay among them, which may

show changes over time, needs further investigation. Future research should also include

external measures rather than only using same-source measures. As mentioned before, an

exclusive reliance on self-reports can distort the results obtained. Lastly, as this study

focussed on the effects of imbalance of power, future research should also examine the role

of other group-level constructs that may influence the responses given to a merger. It is

hoped that future research will overcome the limitations of the present study and provide

human resources managers with better insights into and effective solutions for both short-

and long-term effects of status differences on mergers.

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