Developing scenarios for post-merger and acquisition integration: a grounded theory of'risk bartering'

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Developing Scenarios for Post-Merger and Acquisition Integration:
A Grounded Theory of 'Risk Bartering'
Ian Alexander Harwood
A thesis submitted to the University of Southampton
for the Degree of Doctor of Philosophy
School of Management
Faculty of Social Sciences Submitted: 26^^ October 2001
Southampton, UK. Viva voce: 11^^ December 2001
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ABSTRACT
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Doctor of Philosophy
Developing Scenarios for Post-Merger and Acquisition Integration:
A Grounded Theory of 'Risk Bartering'
Ian Alexander Harwood
Whilst recent evidence suggests that the fifth 'wave' of global merger and acquisition
(M&A) activity is coming to an abrupt end, the growth of M&A activity continued
apace throughout the last decade of the twentieth century, with the year 2000 seeing an
unprecedented US$3.5 trillion worth of deals worldwide {The Economist, January 25^
2001). Considering the monetary values involved, it is perhaps surprising that only
around half of the combinations will deliver the value or savings upon which the deals
are justified. Mergers and acquisitions can therefore be deemed extremely risky
ventures.
In response to this dilemma, this thesis brings together the fields of project risk
management and mergers and acquisitions, an overlap that is particularly under-
developed in the extant literature. Adopting a grounded theory approach (Glaser and
Strauss, 1967; Strauss and Corbin, 1998), a four-year worldwide integration
programme within a FTSEIOO healthcare company was analysed. The research aimed
to secure an understanding of the complex dynamics of human actions and interactions
relating to the phenomena of risk management whilst developing scenarios during the
post-merger and acquisition integration phase.
Through the development of a substantive theory of 'risk bartering', the research has
discovered that whilst operating within a 'confidentiality bubble', some individuals
were using an (often unfounded) increase or decrease in potential risks for ulterior
motives. Rather than, as is the case in contemporary project risk management, the
scenarios being developed and then the risks being assessed, the risks were being used
to develop and shape the final scenarios. As a result, risks were being transposed from
the individual to the organisation. This central finding has the potential to adversely
affect the risk efficiency of the organisation, especially where levels of risk
management maturity (Hillson, 1997) are 'naive' or 'novice'. Recommendations are
made to ring fence the level of risk bartering, with the view to striking a balance
between gaining individual ownership of the resultant change programme and
optimising the organisation's risk efficiency, thereby increasing the chances of a
successful integration.
Table of Contents
CHAPTER 1 : INTRODUCTION TO THE RESEARCH 1
1.1 Setting the scene 1
1.2 Overview of the merger and acquisition process 3
1.3 The development of project risk management 5
1.4 Motivation behind the research 7
1.5 Evolution of the research theme and aims 7
1.6 Synopsis of the case study 8
1.7 Structure of the thesis 9
CHAPTER 2 : REVIEW OF THE LITERATURE 12
2.1 Introduction 12
2.2 Mergers and acquisitions 14
2.2.1 Classifications of mergers and acquisitions 14
2.2.2 Historical merger and acquisition activity 16
2.2.3 Strategic drivers behind the merger and acquisition activity 17
2.2.4 The merger and acquisition process 19
2.3 Post-merger and acquisition integration 20
2.3.1 The extent of integration - establishing a balance 22
2.3.2 The integration process 24
2.3.3 The human factors 26
2.4 Success rates of mergers and acquisitions 29
2.4.1 Measures of 'success' 29
2.4.2 Historical rates of success in mergers and acquisitions 31
2.4.3 Determinants of integration success 33
2.5 Risk management 34
2.5.1 Introduction to the concept of 'risk' 35
2.5.2 Definition of 'risk' 35
2.5.3 Risk management processes 36
2.5.4 The management of risk within a project environment 38
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2.5.4.1 The risk identification phase 41
2.5.4.2 The risk analysis phase 42
2.5.4.3 The risk management phase 44
2.5.4.4 The risk review phase 46
2.5.5 Human factors in risk management 47
2.5.6 Determinants of risk management use 50
2.5.7 Measures of 'risk maturity' within an organisation 52
2.5.8 Benefits of risk management 53
2.6 Risk management within mergers and acquisitions 55
2.6.1 Risk management within post-merger and acquisition integration 56
2.7 Summary of the chapter 56
CHAPTER 3 : RESEARCH METHODOLOGY 59
3.1 Introduction 59
3.2 Reiteration of the research aims 59
3.3 Research paradigm 60
3.4 Choice of research methodology 61
3.4.1 Defining the contextual boundaries 62
3.4.1.1 Rationale behind a case study format 63
3.4.1.2 Selection of the case study 64
3.5 Grounded theory methodology 65
3.5.1 Historical development of grounded theory 66
3.5.2 Grounded theory process overview 69
3.5.3 Data collection process 70
3.5.3.1 Confidentiality and anonymity 75
3.5.4 Data analysis 76
3.5.4.1 Open coding 77
3.5.4.2 Axial coding 78
3.5.4.3 Selective coding 79
3.5.5 Computer-Assisted Qualitative Data Analysis (CAQDAS) 80
3.6 Macro research timelines 81
3.7 Summary of the chapter 82
111
CHAPTER 4 : THE FACILITIES INTEGRATION PROGRAMME 83
4.1 Introduction 83
4.2 Overview of the case study organisation 83
4.3 The pharmaceutical sector operating environment 84
4.4 The strategic response from SmithKline Beecham 86
4.5 Organisational structure of SmithKline Beecham 87
4.6 Overview of the impacted business divisions 87
4.7 Summary of the case study 'drivers' 90
4.8 The programme of integration 91
4.8.1 The Facilities Integration Programme (FIP) 92
4.8.1.1 Phase 1 - Organisation and outline planning 94
4.8.1.2 Phase 2 - Mobilisation 94
4.8.1.3 Phase 3 - Detailed scenario planning 95
4.8.1.4 Phase 4 - Implementation 101
4.8.2 Achievements resulting from the FIP 102
4.9 Summary of the chapter 103
CHAPTER 5 : THE DISCOVERY OF 'RISK BARTERING' 104
5.1 Introduction 104
5.2 Contextual factors 105
5.2.1 Widespread 'protectionism' 106
5.2.2 Policy statement on maintaining levels of complexity 107
5.2.3 Incremental expectations of improved integration performance 107
5.2.4 Time pressures to deliver the programme 108
5.2.5 The importance of business continuity 109
5.2.6 The hyper-political environment 109
5.3 The 'confidentiality' phenomenon 110
5.3.1 The 'confidentiality bubble' 111
5.3.2 Populating and reinforcing the bubble 112
5.3.3 Minor perforations in the bubble membrane 113
5.3.4 Embedded 'bubbles within bubbles' 115
5.4 Personal consequences of the confidentiality bubble 116
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5.4.1 Potential 'upsides' of being within the bubble 116
5.4.2 Potential 'downsides' of being within the bubble 117
5.4.3 Impact of 'multiple exposures' to confidentiality constraints 119
5.5 'Data substitution' as a consequence of confidentiality 120
5.5.1 Using 'experience' as a data substitute 120
5.5.2 Using 'intuitive insights' as a data substitute 122
5.5.3 Using 'historical accounts' as a data substitute 123
5.5.4 Knowledge transfer and learning 123
5.6 A propensity for risk aversion 125
5.6.1 Risk approach: from 'crisis/reactive' to 'planned/proactive' 129
5.6.2 Management style: from 'micro' to 'macro' 130
5.6.3 Risk encouragement: from 'restrained' to 'unrestrained' 131
5.6.4 Risk perspective: from 'negative' to 'positive' 132
5.6.5 Risk reviews: from 'static' to 'dynamic' 132
5.6.6 Risk horizons; from 'short term' to 'long term' 133
5.6.7 Risk rhetoric: from 'indirect' to 'direct' 134
5.6.8 Risk rewards: from 'intangible' to 'tangible' 135
5.6.9 Risk ownership: from 'forced' to 'voluntary' 136
5.7 Layers of risk 136
5.7.1 Personal risks 137
5.7.2 Organisational risks 138
5.7.3 Global risks 139
5.8 Risk validation through consultation 140
5.8.1 Protectionism revisited 141
5.9 The phenomenon of 'risk bartering' 143
5.9.1 Covert risk bartering 146
5.9.2 Overt risk bartering 146
5.9.3 'Risk convergence' as a consequence of 'risk bartering' 147
5.10 Transition to implementation 148
5.11 The 'risk bartering' paradigm model 149
5.12 Summary of the chapter 150
CHAPTER 6 : A SUBSTANTIVE THEORY OF RISK BARTERING' 151
6.1 Introduction 151
6.2 Using the integrative 'storyline' to gain closure to the research 152
6.3 The integrative scheme of risk bartering 153
6.3.1 Assessing personal risks for an imbalance 154
6.3.2 Transposing risks: from personal to organisational 155
6.4 Identifying 'risk bartering' as the core category 157
6.4.1 Assessment criteria for the core category of 'risk bartering' 158
6.5 A substantive theory of 'risk bartering' 160
6.6 Summary of the chapter 161
CHAPTER 7 : DISCUSSION AND REFLECTION 163
7.1 Introduction 163
7.2 Theoretically evaluating the impact of risk bartering 164
7.2.1 Organisational risk efficiency 164
7.2.2 Personal risk efficiency 167
7.2.3 Impact of risk bartering on organisational risk efficiency 168
7.2.4 Impact of risk bartering on personal risk efficiency 170
7.3 The effect of risk bartering on the integration performance 173
7.3.1 Evaluating the degree of the FIP success 174
7.3.2 Risk bartering and the individual 176
7.3.3 Risk bartering and the organisation 176
7.4 Risk bartering from a 'process perspective' 177
7.5 The importance of the 'confidentiaUty bubble' 178
7.6 Recommendations for managing the extent of risk bartering 179
7.6.1 The need for increased risk management maturity 180
7.6.2 The need for an 'honest broker' 182
7.7 Reflection on the research process and findings 184
7.7.1 Objectivity and sensitivity of the researcher 184
7.7.2 Validity of the research findings 186
7.7.3 Reproducibility and generalisability of the research findings 187
7.8 Summary of the chapter 188
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CHAPTER 8 : SUMMARY AND CONCLUSIONS 190
8.1 Introduction 190
8.2 Reiteration of the research aims 190
8.3 Summary of the research activities and findings 191
8.4 Conclusions and contributions arising from the research 194
8.4.1 Theoretical contributions 195
8.4.2 Methodological contributions 197
8.5 Potential limitations of the study 200
8.6 Areas for further research 202
Appendix A - interview information pack (phase 1) 206
Appendix B - interview information pack (phase 2) 210
Appendix C - preliminary coding framework 218
Glossary of grounded theory terminology 226
List of references 229
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List of Figures
Figure 1 : Value of global merger and acquisition activity 2
Figure 2 : The merger and acquisition process - a seven stage model 20
Figure 3 : Post-merger and acquisition integration process 25
Figure 4 : The project risk management cycle 38
Figure 5 : Key historical developments of grounded theory 67
Figure 6 : The macro-research process flow 69
Figure 7 : A summary of the grounded theory analysis process 76
Figure 8 ; Schedule of research activities 81
Figure 9 ; SmithKline Beecham organisation chart (as of 1995) 87
Figure 10 ; Worldwide Supply Operations organisation chart (as of 1995) 89
Figure 11 ; SmithKline Beecham manufacturing locations (as of 1994) 90
Figure 12 : The FIP planning and implementation process overview (Stage 2) 93
Figure 13 : Summary of the FIP business case development process 100
Figure 14 : The FIP implementation matrix structure 101
Figure 15 : Embedded bubbles : knowledge on a 'need to know' basis 115
Figure 16 : Generating relational statements via the 'mini-framework' 127
Figure 17 : Constituents of 'risk propensity' 128
Figure 18 ; Layers of risk - personal, organisational and global 137
Figure 19 ; Covert and overt 'risk bartering' 145
Figure 20 : The 'risk bartering' paradigm model 149
Figure 21 : The integrative scheme of risk bartering 153
Figure 22 : Risk imbalance 155
Figure 23 : Transposition of risks: from personal to organisational 156
Figure 24 ; The integrative diagram of 'risk bartering' 161
Figure 25 : Organisational risk efficiency prior to risk bartering 165
Figure 26 ; Personal risk efficiency prior to risk bartering 167
Figure 27 : Organisational risk efficiency after risk bartering 169
Figure 28 : Personal risk efficiency after risk bartering 170
Figure 29 : The integrative diagram of 'risk bartering' 193
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