Employee Integration After Mergers

As companies merge together to form larger corporations, the concept of integration, or the interconnectedness of organizational parts, becomes increasingly important to success in the merger and acquisition process.

The human side of integration is particularly vital in acquisitions. In order to integrate two combining organizations, relationships need to be established or extended to connect their members together. As individuals start developing new working relationships, they begin to share resources, coordinate activities, and in turn, create value.

Despite their frequency, many acquisitions fail to achieve the hoped-for level of integration, which becomes a contributing factor in the underperformance of a firm. Recent research from Forrest Briscoe, associate professor of management and Wenpin Tsai, John and Kara Arnold Fellow in Management and professor of business administration at the Penn State Smeal College of Business, suggests that such failure to integrate can be attributed to a common phenomenon observed in many workplaces: relational inertia, or the tendency for people to stick with existing collaborators and routines even as the world changes around them.

Briscoe and Tsai analyzed internal paperwork and billable hour records from 212 individuals involved in a law firm acquisition process and conducted in-depth interviews in order to better understand relational inertia and its impact on successful integration.

In part, inertia in organizations arises from cautious behavior in forming new relationships across the boundaries of the acquired and acquiring firms. Particularly in law firm acquisitions, these new relationships take shape in the form of client sharing, which occurs when one partner provides others with billable work on client projects.

“In organizations that provide services to clients, such as the law firms we studied,” write the researchers, “a key vehicle for relational integration involves individuals working together on client projects. We argue that the factors which influence client sharing should also shape the extent of integration in the wake of acquisitions.”

The researchers examined each individual’s new client sharing relationships both to members of the other merging firms, which they call new inter-unit sharing, and also to members of their old legacy firm, which they call intra-unit sharing.

Each of the combining firms has different expertise and experience, such that inter-unit sharing broadens the combined scope of services and creates new value that wouldn’t be available to each firm acting alone. But the amount of client sharing that occurs can be predicted largely based on how open or closed the partner’s pre-existing network was prior to the merger: those partners whose networks were more open placed more emphasis on reaching out and connecting with their new colleagues. As they further explored this issue, however, they found that those same partners were more likely to adjust their old networks as well by severing some older workplace ties.

Briscoe and Tsai also conjectured that higher levels of client sharing would not only increase revenues for the firm, but also expose junior associates to new learning opportunities, therefore increasing human capital on an intra-unit level. In the law firm context, informal training is particularly important, as partners supervise groups of junior associates who could potentially serve as critical assets to partners’ productivity and performance. Extending and strengthening networks, coupled with higher levels of training for associates would likely result in a more successful integration of combining law firms.

However, findings suggest that while higher levels of client sharing do generate more revenue for the organization, it hinders the integration process because human capital development within the combined firm is neglected.

“The finding that inter-unit sharing decreases human capital development was surprising,” write the researchers, “as we expected that greater learning opportunities associated with inter-unit sharing would lead to positive human capital development outcomes.”

Studying acquisitions as major instances of organizational change, the researchers find systematic variance in how individual relationships adjust—and how those adjustments, in turn, contribute to value creation. Their findings serve to highlight the importance of understanding integration both across boundaries of combining law firms and within former firms. How individuals react in response to organizational shifts suggests a trade-off that needs to be explored further, including the tension between new relationship formation and the cutting of old ties. Additionally, findings suggest a further need to investigate the differing impacts of relationship formation on revenue generation versus human capital development. Future work in these areas should help to build a richer theoretical model of relational integration in organizations.

Their study, “Overcoming Relational Inertia: How Organizational Members Respond to Acquisition Events in a Law Firm,” is forthcoming in Administrative Science Quarterly.