Healthcare Articles

Mergers in the Pharmaceutical Industry: Managing the Cultural Change

The effective post-merger integration of employees from two companies is a difficult, complex and delicate issue that needs to be carefully managed. When two companies merge there should be much attention given to cultural integration. This is as important as merging finances and operations. Although mergers are based on the principle that the combined company is more valuable (for R&D, financial and strategic reasons), not giving enough attention to a clash of cultures can result in difficulties.

The psychological consequences of the merger process are very important to understand. Mergers disrupt relationships and support systems and if the psychological losses of employees are not acknowledged early in the process then there may be long term problems in attitude and behaviour.

With all mergers there is uncertainty and insecurity. Typically there is a feeling of loss of control and personal vulnerability. During every merger there is a high chance that several people will leave.There are many reasons for this. Some get annoyed because they feel like second class citizens, some cannot adapt to the changed corporate culture, some are made redundant, some are reassigned or some receive incentives to leave.

Because of the uncertainties employees lose enthusiasm for their work and the organisation. There is a decrease in morale and organisational pride. Organisational effectiveness is less than optimal because countless hours are spent discussing the rumours and adopting a ‘wait and see’ attitude.

To prevent this, a vision for the new organisation must be created and new future targets set. People can then refocus their energies in a forward direction. In order to accomplish this companies should develop a plan for merging. A merger team can be formed that works through to establish a new set of shared values and thus a joint definition of the new culture. This process can start with a specific plan to merge the two cultures. During the pre-acquisition phase of a merger, and part of the ‘due-diligence’ process a cultural profile of each company can be developed.

Organisational members from each company are asked a series of questions regarding their way of doing business such as leadership styles, communication, teamwork, performance expectations, pace of decision-making, flexibility, customer focus and innovation. This information can then be used to assess the smoothness of cultural integration with the prospective partner, and identify areas for re-evaluation. Once the cultural profile of each partner has been determined consideration is then given to the similarities and differences with regards performance review systems, performance criteria, compensation systems and other HR practices.

With knowledge of these aspects both parties can discuss the proposed nature of the cultural integration. The ‘merger integration team’ can then focus on developing a comprehensive human resources and cultural integration plan. The key components of this plan are the organisational reporting relationships, compensation and employee benefits, the new vision, mission and values and a communication plan to ensure effective integration of the two groups.

The most important aspect of this is the effectiveness of the communication plan. From the beginning it is important to communicate the benefits of the merger. People are resentful of the unknown and will react in a number of ways. Senior managers must make themselves visible and accessible to all employees and openly discuss as much information as can be made available, thus minimizing the impact of rumours.

The benefits of giving attention to the cultural aspects of mergers include improved morale; staff retention; and improved productivity and profitability.

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By Dr Glenn Carter, Managing Director of Pharmaceutical Professionals, a Sydney professional services company.

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