Organizational Merger Dynamics

Organizational mergers -- and acquisitions-- (M&A) are pervasive in modern life. It has been estimated that in a single year, 10% of the American workforce is directly affected by corporate M&A activity (Buono & Bowditch, 1989). Although this estimate could be considered conservative (Schweiger & Walsh, 1990), at select periods in the global economic cycle, barely a month goes by without an announcement of yet another mega-merger (Davidson, 1985) - a single such event that can directly involve tens of thousands of stakeholders. While statistically, a specific individual may not be affected personally, others in a person's social network may be somehow be affected by a merger of sorts. No matter the vantage point, organizational mergers are all-pervading - be it a business, a government agency, or a little-league baseball team.

Truly-beneficial mergers, those deemed to be an eventual success, are infrequent thus the promise of a successful merger can elude many (Harrison, 2007); failure estimates have ranged from 50% (Porter, 1987) to 80% (Marks & Mirvis, 2001). While business or market growth is most often the primary objective or a raison d'être of a corporate merger, deals frequently are a manifestation of an organizational strategy in which the merger is actuality a accumulation of additional human resources, e.g., the skills, resources and knowledge, of another organization (Lin, Hung & Li, 2006). In mergers with human asset accumulation as the driver for the combination, management focus on the human resource management (HRM) risk is essential (Bryson, 2003) and is critical to merger success. One influential measure of success is the ability of management to successfully integrate the incoming personnel into the newly combined company by selecting and executing effectual post-merger integration strategies and policies (Wells, 2004). These policies unavoidably affect the formal and social position of the individual members of the combined organization. Individuals' new position in the social network may have a powerful affect on the task-performance of each individual and ultimately that of the entire workforce; therefore, the consequence of the integration strategy and its affect on people cannot be understated.

The purpose of this project is to model the dynamics of organizational mergers in order to, first, gain a rich understanding of the phenomenon with the preciseness inherent in a computational model, then to operationalize the model so that this knowledge can be fully utilized to affect real-world organizational mergers.

Examples of the research in progress include:

(A) We conduct a series of computer simulations to investigate the impact of various workforce merger-integration policies on the centrality characteristics of a social network within an organization. We explore how various centrality measures change from the pre-merger to the post-merger structure. We focus on the evaluation of the various post-merger integration strategies applied to the formation of the conjoint organization. The simulations involve a process of constructing two random social networks, of same size and density, and for each network compute four common measures of centrality: betweenness, closeness, degree, and eigenvector. The two networks are then merged according to a specified integration strategy, e.g., add ties between two random actors who are each originally a member of a different network. Next, the centrality measures are reexamined and compared to the original values. Results of these simulations inform organizational managers about the characteristic impact on the social network in their organization as a result of their chosen merger integration strategy.

(B) Using simulated data, we apply Dynamic Network Analysis (DNA) techniques to study the impact of different merger integration strategies on the structure and network characteristics of the newly formed organization. The pre- and post-merger organization networks are represented by an actor-task-resource, meta-network structure and these networks are combined according to a sensible management policy transformed into network rules. In this paper: (a) we describe our proposed approach using DNA techniques for, and how we specifically applied it to, the study of this common, but little studied, organizational event, and (b) report the results of virtual experiments conducted on randomly-structured, sample organizations, by exploring the network-oriented outcomes of various combinations of integration strategies and business merger types, e.g., vertical merger. We report the detailed results in the form of presenting the new organization's global-level DNA measures, e.g., cognitive load, and rank-ordering of the key actors, e.g., top-5 betweenness actors. Results inform managers on to effectively use DNA for merger-integration policy analysis and what the most effective integration strategies are given the desired outcome under the different merger-types.

Visit the Organizational Merger Dynamics Project Working Page at: http://deepthought.casos.cs.cmu.edu:/mergers

At the CASOS Summer Institute, CASOS Ph.D. students have the chance to display and discuss their projects and work. The 2008 CASOS Summer Institute poster for Organizational Merger Dynamics is:

"Organizational Mergers: Integration Strategies using Dynamic Network Analysis"