Positivist Paradigm Phenomenological Paradigm Management Essay

This chapter will focus on the methodology of the research, including the approach, applied methods, research strategy, data collection and analysis, research limitation and ethics. This is important step because it describes the way researcher decides to choose to work out findings of the research.

Research philosophy.

A research philosophy refers to the belief about the way data of a phenomenon be gathered, analyzed and used. There are four types of research philosophy: positivism, realism, interpretivism and pragmatism (Saunders et al, 2009), however, positivism and interpretivism are the most dominating ones. A positivism research “denotes a philosophical approach, theory, or system base on the view that in the social as well as natural sciences sense experiences and their logical and mathematical treatment are the exclusive source of all worthwhile information” (Adler, 1964). The positivist argues that the true exists independently of the people who seek it, and can be found through logical deduction or the collection of data (Jankowicz, 2005). Phenomenologist, or so called “interpretivism”, “social constructionism” (Easterby-Smith et al, 2002) on another hand, believes that the world is socially constructed and subjective and science is driven by human interest. The philosophy of a reseacher has close relationship with reseach approach, strategy and methodology. The deltails of positivism and phenomenology are presentd in table below:

Positivist paradigm

Phenomenological paradigm

Basic beliefs

The world is external and objective

The world is socially constructed and subjective

Observer is independent

Observer is part of what observed

Science is value-free

Science is driven by human interests

Researcher should

Focus on facts

Focus on meanings

Look for causality and fundamental laws

Try to understand what is happening

Reduce phenomenon to simplest elements

Look at the totality of each situation

Formulate hypotheses and then test them

Develop ideas through induction from data

Preferred method include

Operationalising concepts so that they can be measured

Using multiple methods to establish different views of phenomena.

Taking large samples

Small samples investigated in depth or over time

Table: Research paradigms (Source: Easterby-Smith et al, 1991)

However, despite the fact that there is a relatively clear distinction between positivist’s and phenomenologist’s view, and “a sharp difference of opinion exist between researchers about the desirability of methods, the practice of research involves a lot of compromise between these pure positions” (Easterby-Smith et al, 2002). This opinion is strenghthened by many researchers’ consensus, such as Remenyi et al (1998), Orton, (1997) or Saunders et al (2009).

This research is dealing with culture issue, which is complicated with various layers and strongly affected by human factors, therefore phenomenology is chosen as dominated philosophy. However, the author will also employ some methods of data collection and analysis in positivism approach to improve the quality of research.

Research approach.

According to Saunders et al (2009), there are 3 distinct methods of reasoning: deductive, inductive and abductive. In deductive approach, theories and hypotheses would be tested against reality to see if it was verified or not. Inductive approach, in contrast, base on empirical findings, researcher will generalizing the facts to theories. Abductive approach starts with an incomplete set of observations and tries to find the likely best explanation for what have been observed.

For the nature and purpose of this study, the author decides to employ deductive approach. Robson (2002) introduces 5 stages of deductive approach process as follows:

-Deducing the hypothesis from theory.

-Expressing the hypothesis in a relationship between two specific concepts or variables.

-Testing the operational hypothesis.

-Examining the specific outcome of inquiry.

-Modifying the theory in the light of the findings.

In this research, the author starts by compiling other studies on corporate culture issues, especially those involving merger, sorting them out, providing hypotheses and test these hypotheses by empirical facts and finally, making results.

Research strategy.

Saunders et al (2009) argues that research strategy should be chosen base on what kind of questions to be answered and what objectives to obtain. There are seven models of strategy, including experiment, survey, case study, action research, grounded theories, ethnography and archival research. Base on the objectives mentioned in chapter 1, the author decides to choose case study as strategy for this research, because the following reasons:

Firstly, the case study is applicable for analyzing the process with qualitative approach (Denzin and Lincoln, 2000), however, case study also allows for quantitative measurement. Yin (1984) notes that “case studies can be based… entirely on quantitative evidence”. In this research, the author attempts to use both qualitative and quantitative approach, which is entirely applicable using case study strategy.

Secondly, we can have in depth view on the entire organization with thorough detail on the issue (Makhlouk and Shevchuk, 2008). Hammersley (1987) argues that the case study examines the interplay of all variables so as to provide deep and complete understanding to an event or situation.

However, case study strategy has some limitations. Yin (2003) indicates that case study is too situational specific that could hardly create a strong base for scientific generalization. Because the case lack of representativeness, in this research, the author will avoid making generalization but simply test the hypothesis whether it is fault or true for this specific case, then the author will make any adjustment, when possible, to the hypothesis.

A case study can be classified to multiple or single one (Yin, 1994). This refers to the number of case being investigated to test against existing theories. One investigated case will design single case study and more than one case will form multiple case study. Yin further classifies the case study into embedded or holistic design. The distinction between these designs lays in the number of analysis units that are analyzed in the case study, while the holistic one concerns only one unit of analysis, the embedded one involves multiple units. In this particular study, the author employs single case holistic design, which means only one unique case (Habubank acquisition) is being studied in order to have a critical test on an existing, well formulated theory. Only one unit of analysis, i.e. culture differences on the post merger entity appears in this study.

Research method.

Dawson (2009) mentions two methods of measurement including qualitative and quantitative ones. The main difference between these two methods is not the quality, but the procedure to collect and process data. Qualitative method is appropriate for “research about persons’ lives, lived experiences, behaviors, emotions and feelings about organization functioning, social movements, culture phenomena…” (Strauss and Corbin, 1998). Generally, qualitative research is used to have in-depth assessment on the behavior, attitude and experiences. This methods is applicable while the phenomena are often complex in nature (Ghauri & Grohaug, 2005). Qualitative method is appropriate when using questions “why”, “what” and “how” (Sauder et al, 1999).

Quantitative research “generates statistics through using large scale survey research”. This method emphasizes quantification procedure, therefore, applicable in research of facts.

In this research, qualitative method is used as to find answer for the hypotheses raised in previous chapter. The reason for this is that culture-related issues are complex and difficult to measure, therefore unable to be solved using solely quantitative method. Schein, (1984) argues that the basic assumptions underlying culture can hardly be captured in quantitative analysis but a qualitative method will be more helpful in acquiring an in-dept understanding. The author therefore believes that qualitative approach will be more appropriate in finding answer for the specific case of this study. However, to engage more respondents to the research and increase the validity, the author also employ quantitative method by provide questionnaires and measure the response of the employees through numbers and index.

Data collection and data analysis

3.5.1 Data collection

Data collection is important in finding outcome of a research and should be chosen base on the nature of research problem. Data of a research might be primary, or secondary one, or both. In this research, secondary data collection is used in reviewing literature and making research methodology. Primary data will be collected from questionnaire, interview or observation for exploring research.

Primary data are those directly collected by the researcher (Srivastava and Rego, 2011). According to Ghauri and Grohaug (2005), the advantage of primary data is the relevance and consistency with research objectives. However, primary data also has shortages as cost and time consuming to collect and difficult to access, to analyze and to synthesize. Moreover, to some extent, the primary data could bear the bias. This, however, could be reduced by involving high number of respondents in questionaires and interviews.

In this research, the author uses interview and questionnaire to acquired data from respondents. Because the research author is working in the organization, therefore, observation is a appropriate way to collect data which would help the author have direct information on the related problems, especially sensitive information that interviewees may evade.

Ghauri & Grohaug (2005) defines secondary data as those have already been collected by others for other purposes. The secondary data from book, journal articles, webpages and published annual reports… are also used in this research to provide information that useful to solve the research problem, help understand and explain the problem in a better way. Books are important sources that provide reliable theories, while Internet offers an easy access to a wide source of online databases, such as EBSCO, Emerald, Sage, etc. Many academic writings can be found in these sources and construct a multi-dimension view for the researcher on the chosen topic.

The advantages of secondary data collection comprise of time and money saving, ability to propose suitable methods to resolve particular research problems (Ghauri and Grohaug, 2005), data could be collected in large geography and temporal problem (Srivastava and Rego, 2011). However, because secondary data is collected from other researchers with possible different objectives, which probably do not completely fit current research problems, using secondary data therefore would bear limitations.

Design of questionnaire and interview:

The basic idea of qualitative research is to choose research participants who has lived through the phenomenon that the researcher is curious about (Auerbach et al, 2003). For qualitative research, the size of population is not as important as the suitability of the population, therefore, the researcher focuses on selection of the right participants and designing the questionnaire and interview.

Interview:

Fisher (2007) points out two types of interview: open and pre-coded ones. In open interview, interviewers and respondents do not follow a defined format but let the dialog flow as the way it is. In a pre-coded ones, the interviewer prepares a script and not to deviate from that. In this research, the author decides to use the semi-structured interviews which by the nature are mixture of the above. This kind of interview could help directing the conversation while capture more interesting information that respondents may want to deliver. Another reason for semi-structure interview is that it was conducted in many researches therefore implies for the advantageous usage. More over, the author could have more valuable information if respondents are not subject to pre-defined questions. The author will also have chance to make questions clearer to help the respondents clearly understand the intention of the research and give response precisely. Only once the clear understanding was gained, was it possible for the interviewees to propose recommendations in better handling culture conflicts in merger.

To prepare for the interview, the author first drafts the interview with open questions, distributes the questions to interviewees by e-mail for their preparation and asks for a meeting. The author then will arrange a face to face meeting with the interviewees using note-taking. Additional questions can be raised during the interview for capturing more information.

There are three parts in the interview:

The description of the culture differences.

The impacts of the culture differences on employee turnover, performance and corporate value.

The role of leaders in managing culture clashes and recommended actions to curve bad impacts.

The study is conducted on the full time employees who work for Habubank under the merging time. The author intend to choose 6 participants from 6 branches in Hanoi to make interviews, these are the branches bearing the highest outstanding loan and number of employees of the bank. There are 3 more respondents from different functional departments in Head Office. The participants are intentionally chosen based on assessment of their potential understanding of the acquisition, experience and management skill. The participants are managers or directors because these respondents have a sufficient information and knowledge about the merger and related issues. There are three managers and four branch directors can arrange time for face to face interview, one directors is on business and unable to arrange for the interview, the last directors agree to make interview via phone. Direct interview takes 60 minutes on average, while phone interview takes only 45 minutes.

Questionnaire:

This type of data collection allow the author to collect direct and relevant information. Advantages of questionnaire include: cheap and quick to conduct, enables anonymity and can be fulfilled anytime and anywhere (Bryman and Bell, 2007). However, with questionnaire, it is important that the participants understand the questions so that they can give most accurate data.

Questionnaire could be self-administered or interviewer-administered. Self administered questionnaire is used with closed questions while interviewer administered questionnaire is used with open questions. In this research, the author attempts to use self – administered questionnaire to measure the PCC index to see whether the culture of new entity meet employees’ expectations from both acquire and target companies.

Because questionaires are used to create PCC index, which measures the compatibility of the acquirer and target’s cultures, therefore this index needs to represent the view of majority of employees. Due to this reason, the researcher intentionally choose employees as targeted respondents with expected populations of 100 to increase the reliability of data. The questionnaire for measuring PCC will be constructed as a table based on the variables adapted from Cartwright and Cooper, (1992) with self-administered design. The questionnaires are delivered by e-mail and collected from participants 3 days after that. The author is available by phone to explain any technical terms that respondents may have.

Method of data collection

Hypothesis

Descriptions

Question no.

Perceived Culture compatibility

1-23

Culture differences

1-6

Culture impacts on employee turnover

Culture impacts on performance

Culture impacts on corporate value

Role of culture leaders on dealing with conflict

10-12

Figure 6: Distribution of issues on questionnaire/interview.

3.6.2 Data analysis

In this study, the author will use Microsoft Excel to analyze the primary data collected from questionnaire. Data collected from interviews will be grouped in four colour- coded- excel sheets namely culture dimensions, impacts of culture conflicts, role of culture leaders and recommendations. Impacts of culture will be managed under different heading columns: human resources, performance and value. These are the main objectives that the author is trying to make clear in this research. Narratives of participants’ responses are quoted in a separate sheet for convenient reference when needed. Arranging data this way will help the author to easily identify the similarities and differences. The author will also weight the percentage of commons view to see what is major opinion and what factor is the most influenced by culture differences.

Limitations of research methods.

Due to the approach, the strategy and methodology chosen of the research, some limitations could be identified as follows:

Firstly, there would be possible bias from the answers collected from questionnaire and interview method. Ticehurst & Veal (1999) suggested that there was a risk of receiving low quality responses because of some reasons: not interesting issues, the language used in the survey was too academic and not easy to understand…

Secondly, some participants might not tell all of their thinking when completing the questionnaire/interview because assessing culture issues is quite sensitive. The employees may tend to withdraw from the sensitive questions or do not answer the questions directly.

Thirdly, since the author is currently employees of the questioned company and uses observation as a method to collect data, the result would somehow be subjective. However, this could be narrow down since other objective methods like questionnaire, interviews are used as majority.

Fourthly, because the limitation in time and geography, the author can not cover such a high population as expected. It is obvious that the larger the population, the higher validity the result. Therefore, the finding of this study is only have reference value and future readers should realize this limitation area.

Ethical issue

Fowler (2002) argues in his writing that researchers “should make sure that no individual suffers any adverse consequences as a result of the survey”. Regarding ethical stances, Zikmund (2003) on another hand indicates that it is researcher obligation to “presenting research purpose and safe guarding participants confidentiality and secrecy and prevention of the occurrence of any hurt or humiliation and prevention of exertion of pressure on any of the respondents will be considered”.

According to Saunders et al (2009), research ethics include:

Privacy of participants

Voluntary nature of participant and the right to partially or completely withdraw from the process

Consent and possible deception of participants

Maintenance of the confidentiality of data provided by individuals or identifiable participants and their anonymity

Reaction of participants to the data collection method

Effects on participants from data analysis method

Behavior and objectivity of the researcher

In this research, the author integrates the ethics issues into the whole research project. The author respects the privacy and confidentiality of the respondents as well as their contribution to this research. If the participants do not want to join the interview, the author will be pleasure but do not enforce them to do the same. They are aware that information provided will be keep confidential, never be disclosed for the third party or used for other purposes outside this academic writing. Employees who take questionnaire is not requested to give name. Contend of interviews is not tape recorded but note-taken and kept anonymous. This ethical stance will be clearly delivered to the respondent before implement the research.

Chapter summary.

The chapter has discussed the methodology of this research. In this research, the author uses deductive as the major approach to test the proposed hypothesis. Qualitative research are chosen to deal with complicated issues of culture. The author uses non-probability technique to make 9 interviews and 100 questionnaires. Collecting data is analyzed by Excel. The research limitation and ethics are also described in detail. By grasping the research methodology, in the next chapter, the author will collect and analyze data to address the hypotheses raised in chapter 2.

Chapter 4: Findings and discussion.

Chapter introduction

In this chapter, the results obtained from interviews, questionnaires, self observe and other sources such as websites, annual reports… regarding the integration process of HBB acquisition are presented. The researcher will analyze the collected data to address the hypotheses raised in chapter 2. In this chapter, the main objectives of the thesis will be solved through the discussion on issues raised. To help the readers follow the chapter, the author will present chapter content in the same order in literature review. For a better understanding of the case, the researcher also introduce an overview and the reasons lead to merger of SHB and HBB.

4.1 The context of Habubank acquisition

Established in 1989, HBB is one of the most early established banks in Vietnam. In February 2012, HBB’s chartered capital of VND 4,050 billion dong (USD1.92 million equivalent) with 1,300 staffs. The bank has 80 branches and transaction points nationwide with main forcus on the North of Vietnam.

HBB used to be the bank of dream that many people want to work for. In year 2006, 2007, HBB was one of the top 3 joint stock banks, and continuously granted “Vietnam Bank of the Year” award by The Banker Journal, UK. However, the bank was unable to maintain its success during the economic recession, as it faced serious difficulties in liquidity and bore extremely high level of bad debts.

There are some reasons attributed to HBB failure. First, the undiversified credit list. The bank concentrated too much on certain groups of customers, and when some of these customers had difficulties in operation and went bankrupcy, the bank’s operation was seriously affected. Second, economic recession makes buniness operation of companies even more difficult and ineffective. Third, the risky investment. HBB pursued quick growth by emphasizing on the high risk high return industry while paid less necessary attention on the sustainable development. Last, the risk management system and credit policy makers of the bank did not make a good job. There had been many commercial frauds in banking system and the bank was one of the victims with estimated loss of Vietnam dong thousands billion.

Due to the above obstacles, the bank operation had experienced negative growth. HBB reported an inherited loss at VND 1,829 billion in February 2012, and the overdue loan was at 21.32%, much higher than the avarage rate 3.2% of the banking system (Merger Plan, 2012). The bank liquidity is at highest emergency and stands at threshold of bankrupcy, and is demanded by SBV to merge with other bank in the system to improve its financial status.

SHB was founded in 1993 in the South of Vietnam. By February 2012, the bank network spread along country with 158 branches and transaction points. SHB also extended its business into Asian region with two branches in Laos and Cambodia. The bank has registered capital of of VND 4,815 billion (USD 2.29 million equivalent) and 3,000 staffs.

Despite various difficulties in recent economic recession, SHB maintains its growth during last 5 years. The bank also has clear direction in different stage of development, which is suitable with its capacity. The management team is competent and has long term commitment with the sustainable development of the bank. Said to be active strategists and avail any possible opportunity to develop, the bank leaders recognized M&A as chance to expand its reputation and market share. In the scenario that the State Bank of Vietnam closely controls the credit growth rate and extending network, merger with another bank is a perfect strategic solution to develop with lowest time and money consuming. HBB is targeted due to the similarity in structure, range of services, strong customers base and the posibility of financial success.

SHB and HBB come to a final deal with official annoucement on 28 August 2012, marking the disapearance of HBB entity. Post merged bank operates under the name of SHB. One HBB share will be conversed to 0.75 new share. One former SHB share will be conversed to 1.21 new share. 16 August is the closed day to converse HBB share to SHB share. 26 October is the first trading day of conversed share.

4.2 Findings

4.2.1 Findings from demographic data.

Among 100 survey questionnaire provided to employees of five branches in Hanoi, only 57 sheets are collected. Of those 57 sheets, there are 15 sheets invalid due to the lack of more than 50% questions or some participants mis-understanding the questions. At last, only 42 sheets are valid and taken to canculate PCC Index.

The author contacted 9 directors and managers to arrange the interview, however, only 7 accepted. The othet two respondents think that the issues is too sensitive and they are not yet ready to join the interview. Because the interviewees are intentionally choosen at management level, total 7 directors and managers have at least 8 years working for Habubank before become SHB members, therefore all experiences the transitions period, witness the cultural conflicts and have their own opinion. These respondents all have graduate and post graduate degree, and the author explains in detail the interview question to avoid any mis-understanding. The author therefore is very confident in the reliability of data gathered.

4.2.1 Findings on culture differences.

Culture dimensions

Total respond-ents

No. of respondents acknowledged differences

No. of respondents do not acknow-ledge differences

Approach to innovation and activity

Approach to risk

Horizontal relationship

Autonomy and decision making

Approach to performance

Approach to communication

In terms of innovation and activity:

There are much differences regarding the approach to activity. Frankly speaking, SHB has more rapid response to the changes. The bank rapidly moved from a rural commercial bank to a first class urban bank in terms of reputation and operation scale within 5 years. The bank has strong orientation to grasp any chances to expand its market and product range. SHB is among 5 Vietnamese banks who have overseas operation. This is a wait-in-front action in response to the development of Vietnamese businesses with such countries. The bank also attempts to exploit opportunities to launch new products with detailed development schemes. HBB, on another hand, preferred stability and more focused on formality, therefore, the bank was seriously affected by the financial storm and slowly response to the new difficult situation.

In terms of risk taking:

As consequence of innovation and activities approach, SHB is more risk appetite than HBB. The belief about risk taking influences many important decisions, including the decisions to expand operation abroad, engage in new service ranges, apply new technology or typically, the strategic decision to acquire other institutions to enlarge corporate size and market share. Former HBB, in some fields, to some extent, paid insufficient attention to the risks management. Detailed & specific mechanism to identify and handle potential risks not applied completely, in some fields of business activities.

In terms of horizontal relationship:

Horizontal relationship refers to the cooperation between functional divisions and other units within the bank. In Habubank, people tend to have long term engagement with the bank therefore the connection and cooperation among employees and departments is more enhanced. Working at Habubank is an unforgetable experience for anyone used to be Habubank members. People do not only co-ordinate, share best practices in work but also share living experience. They are not simply workmates but also friends out of work. Leaders of the bank care for work-life balance, they understand that each member also plays other roles and has other responsibilties in life. People are assessed on what they deliver to the whole value, not on what position they have or what responsiblility they own. Above understanding has forstered the employee commitment and the bank turnover is extremely low among other Vietnamese banks. Habubank phylosophy is “HBB Board of Directors and Board of Management consistently and incessantly strive to improve staff motivation and enhance their professional capability. Working with Habubank is a challenging but rewarding opportunity when you can be working in a professional banking environment, obtaining and exploring new knowledge and actively contributing to a financial organization not afraid to admit mistakes and learn from mistakes. Our internal regulations and career development policies have always dignified cultural values treasured by Habubank which are strong leadership, straightforwardness, honesty, explicitness, openness and cooperativeness.” (habubank.com.vn)

However, in SHB, the bank has different structure which highly concentrates on individual responsibility with clear reward and punish mechanism, therefore, to minimize the risk that one possiblly has, people tend to carefully check relevant terms and conditions to protect themselves and less cooperate with other department to solve the problems.

In terms of autonomy and decision making:

All the respondents argue that SHB gives more autonomy and decision making for functional units and branches and HBB is likely to have more restrictions on employees empowerment. SHB’s decentralization structure which allows its business unit to make decision and responsible for its choices. HBB on another hand follows centralization process, thereby every actions need superior approvals. However, with functional structure, organization should have appropriate deligation of power so that making use of the structure type (Minzberg, 1993). All respondents agree that SHB approach on autonomy show advantageousness in banking business. In HBB, people do not have neccessary activeness to make decision but need to ask for Head Office approvals in many cases. This does not create motivation for employees since they feel no need to work harder or make creativeness or improvements.

In terms of performance:

As a matter of course, both efficiency and effectiveness are necessary for the development of banking business. Total 8/8 agree that the criteria to assess performance are similar, however, the way and the frequency of assessing are totally different. In HBB, the assessment of performance was, mainly, done in year end and the criteria were rather vague. In SHB however, the assessment base on KPI was arranged monthly with detail regulations. Assessment is made by specific & feasible measures to evaluate the performance regularly.

In HBB, the human resource assessment process has problems as well. Salary and bonus were prioritized for a group of people relatively biased by senior assessments without any specific achievement. People feel that their contribution is not fairly recognized due to this subjective assessment, and this makes people less active and less motivated in working for the common goals.

In terms of communication:

Despite of the fact that some of respondents recognize no difference between communication of two banks, the majority favors SHB because of better communication approach. In SHB, all staff are updated regularly and timely with internal and external regulation/decisions/process/procedure while these were rather slower in HBB. Head Office functional divisions interact more frequently with branches and have detail directions and regulation for an ease and smooth operation of the bank. However, because of detailed and somehow restricted rules in conducting communication, new comers from HBB tend to parry direct contact with Head Office and this reduces the effectiveness of communication.

PCC index

PCC index is calculated from questionnaire received from 42 respondents. 27 out of 42 people have positive responses about the perceived culture compatibility, while the remaining 15 have negative index. However, the positive index range from 0 to 2.35 only, which mean that the current culture seems not go against their expectation but also does not represent a high level of satisfaction. The average number of PCC is 0.95, a relatively small number compare to the maximum level of compatibility of 20 (Veiga et al, 2000). This implies that even the PCC is positive, it is still far away from expectation and the culture leaders should do more for a better compatibility between two cultures and to ease the integration process.

Individual PCC index

Table: Range of PCC index

4.2.3 Impacts of Culture Conflict on Corporate Operation.

Impacts

Total number of interviewees

No. of interviewees verify the impact

No. of interviewee do not oppose the impact

Increase employee turnover

Reduce short term performance

Reduce short term value

4.2.3.1 Employees turnover

6 out of 7 respondents (100%) acknowledge the impacts of culture conflicts in the increase of employee turnover. The respodents consent that, cultural conflicts, which results from the gaps between two culture lead to high employees turnover in new entity. By this the first hypothesis is confirmed. In their answers, these interviewees agree that the leaving employees are “good and devoted ones” and they found that “it is really unfortunate for SHB when it lets skillful and experience-rich staff leave the bank. Clearly it is a loss on the SHB human resource policy”. People who attempt to quit have talent and experience. In addition, they are also very active and have good relationship, therefore, they can easily find another job with at least similar income. This point has been raised by Pappanatos et al (1987) that these voluteer lay off persons are typically the best performers and of great value to the organization if the organization wants to develop its competitiveness.

These 6 respondents point out main reasons for employee departure as:

Found more secure job.

Fear of downsizing

No belief in new entity.

Unhappy with new position.

In the near future, these respondents believe that there will be more employees leave their jobs despite the fact that SHB did not handle any letter of resignation of credit officers, but force them to continue working for the bank. The bank’s policy of serious punishment on anyone who keep moving make people feel exhausted, demotivating and safe oriented, not work at their best productivity and enthusiasm. Generally, with such a human resource policy, the bank can keep their bodies, but their hearts no longer stay with the bank. This result totally agree with Appelbaum et al (2000) comments that once employees insist in moving, they will not want to dedicate anymore, absenteeism will increase and there will be more people refuse assignment.

One out of 7 respondent believes that the recent lay off trend departs from the fact that employees are still not familiar with new working methods and the contribution of job responsibility to specific position. In other word, employees leave under the pressure of high responsibility. This respondent also stresses that there would be less voluntary lay off in coming time because of two reasons: (i) the bank does not grant quit permission for employees at this time and (ii) there is a trend of downsizing in the Vietnam banking system, which mean that job opportunities are narrowed down and less people want to loose a job at this difficult period. Instead, the forced lay off will occur when redundancy is obstructing SHB in gaining efficiency, the bank will implement downsizing and will actively fire under-qualified staffs. The difference in this director’s point of view can be explained that, this branch still works under management of former HBB members, therefore the actual culture conflict is still not yet happen, while in other branches and HO departments, SHB members join branch’s board of management and culture differences directly influences the turnover of those business units.

Other influences of culture conflict on the human resource can be counted for the low co-operation among the “old” and “new” comers, have demotivating impact on the remain people. When the employees depart, a significant number of customers is moving too. Credit customers only work with credit officer, once these people move, they will have feeling of having start new relationship. Moreover, the new working procedure and the likely time consuming at the early phase after merger make customers easily move if they have any invitation. And employees themselves would tend to contact with their previous customers, because they understand the customers operation, their financial status and demands… In reality, the customers that HBB lost were the most valued one because (i) they do not have bad debts or can arrange to clear the debt with HBB, (ii) have potential profit making, therefore attract other banks concerns. The remaining customers are usually those unable to go because of many reasons: have bad debts and unable to clear, felt in very difficult situation or have little profitability.

Hypothesis 1 is even further verified when two months after merger, there are about 250 letters of resignation from HBB staffs sent to SHB, majority are of management level and key executives. 5 out of 8 members of Board of Directors wish to resign but the bank delays to settle their request. There are many reasons for that fact, but such a high rate of turnover can imply for a negative signals of poor human resource management organization, and this would negatively influence the new bank reputation. This impact has been previously denoted by Cartwright and Cooper (1993) and Ivancevich et al (1987) that an increase in employee turnover would imply for poor human resource management of post merged corporation.

4.2.3.2 Performance

All respondents (7/7) come to consensus that there were many difficulties in the individual performance at the very early stage of acquisition, which means that hypothesis 2 is supported. The backward on performance results from:

Unstable psychology: When merger happens and culture changes occur, employees experiences the feeling of helpless, loss of control over the situation and lowered self image (Levinson, 1976). Levinson stresses that not only the organization who interviews the employees, it is also the employees who consider which organization they would like to work for. The organization of choice will be the one who has culture fits their psychological needs (Appelbaum et al, 2000). In this case, 7/7 respondents acknowledge that many HBB members feel new culture does not meet their psychology, and the bank somehow enforces them to accept new rules. The psychological changes make the employees feel helpless, and this completely goes with what has been mentioned by Appelbaum et al. (2000), that “any employee who feels helpless is one who will not be productive”, and consequently, unproductiveness would leads to short term decrease in the corporate performance.

Undirected working procedure. The changes in values, belief and assumption, together with different working method, workmates, and managers are time and cost consuming, giving low productivity (Appelbaum et al, 2000). Especially in case of HBB acquisition, there are many differences in working procedure, risk appetite while too few specific directions to help the employees catch up with new things and results in poor performance, redo works. Moreover, former SHB members and managers sometimes assess the new comers base on new rules and criticize them for the incompatibility in working procedure. This even made the employees lack of confidence and somehow slow down the integration process. The point gains 7/7 votes from the interview respondents.

Lay off sickness. Noer (1995) notes that, “layoff-survivor sickness is probably the primary reason that downsizing has seldom resulted in increased productivity”. This is absolutely true in case of HBB acquisition, when lay off becomes the matter of course, however, when it has not yet happened, people look around to find new job opportunity, and do not concentrate 100% of their ability to work. Once the prospect is unstable, there would still be counter productivity and undesired performance.

The respondents also commend reason for low performance in short term as heavier workload than previous single entity while lack of experienced people, especially in functional departments in the Head Office. However, 100% of respondents all agree that when things are on track, performance will absolutely better than before. SHB fierce but flexible handling with bad debts allows an expectation for more resolved debt and improved loan quality. In addition to challenges, the bank also commences and rewards the effort of employees. More over, the attractive rewards are also a special characteristic of SHB, for example, they grant overseas travel for employees of excellence, give privilege and special treatments for traditional and big customers. This will encourage and create motivation at work and ensure a improved performance in longer term.

In general, performance reduces in short term, because there are many changes in business procedure, in value, belief and assumption, which need time for employees to get familiar with. However, in long run, where employees get further acquaintance with new culture and new procedure, performance would possibly improve and create synergies as the acquirer’s expectation.

4.2.3.3 Value

6/7 respondents think that in short term, the bank value decreases. The reasons for this attribute to low compatibility in culture of acquirer and target lead to departure of employees, low performance and tiny profit level.

Profit before tax:

Profit before tax

12/2011

2/2012

9/2012

SHB

VND 1,000 billion

VND 100 billion

VND (1,706 billion)

HBB

VND 310 billion

VND (1,829 billion)

Table: Profit before tax (Source: Cafef.vn, shb.com.vn)

Both banks report positive profit at the end of 2011. But by the end of February 2012, only SHB reports positive profit. However, the new SHB announces for a loss of VND 1,604 billion (USD80 million equivalent) by the end of September, 2012, a month after merger (SHB Financial Report, 2012). This can be expained by the fact that SHB succeeds accumulated loss of HBB and now responsible for HBB’s overdue loans. SHB has to acquire specific provision for such a loan, which accounts for 21.32% of HBB total outstanding loan (Merger Proposal, 2012). Moreover, short term performance goes down and results in low profitability. This is not out of SHB leaders estimation because they have predicted parity time for at least 3 years from the date of acquisition. The results go well with Bundy and Hukins (2009) findings that value of the post merger firm decreases in the early time after the merger.

Market price:

In addition to business result, market price can also be a symbol of value changes. The market price one month before and after the merger is stated in figure below:

At 16 August 2012, SHB was traded at VND 9.3 thousand while HBB was traded at VND 5.2 thousand. With the conversion rate of 1 HBB share with 0.75 new bank share and 1 former SHB share with 1.21 new bank share on ex-rights day, the price of new SHB share closed at VND 7.9 thousand on ex-right day. However, on 26 October 2012, the first trading day of new conversed stock, the price felt at 5.7, which mean that the value has decreased shortly after the merger. On 7 November 2012, SHB is traded at VND 4.9 thousand, 38% decrease compare to the price of new share at first trading day 17 August 2012. We can see from the figure two that the price felt regularly from the date of acquisition, and still shows no signals for the recovery in short terms.

Figure: HBB stock price from 16 July to 16 August (Source: cafef.vn)

Figure two: Market price of new SHB after merger. (Source: cafef.vn)

This can be explained by the loss in income statement as mentioned above. It is hardly possible for market price to go up if company has poor performance. However, the decrease of share price may be effected from the downturn of the whole market due to the current economic chaos. This is the common trend of the whole stock market and SHB is not an exception. However, the downtrend in SHB price is likely more severe, being the inevitable results of operational losses.

Hypothesis 3 is supported in specific case of HBB acquisition. However, due to the coincidence of economic downtrend, the relationship of culture conflicts in merger and the decrease in corporate value is rather weak and need to be analyzed in further research.

4.2.4 Role of Cultural Leaders

4.2.4.1 What has been done

Level of resistance.

Level of employee resistance

No. of respondents

It can be seen through the PCC index and through researcher observation that the culture clashes and employees resistance at SHB is relatively simple. The resistance was manifested as:

Not sure about what is correct, what is not.

Fear of job loss and income changes.

Loss of belief and respect.

Feeling isolated.

Feeling powerless and helpless.

The majority (5/7) of respondents think that, resistance level lies on primary level and secondary level (Maurer, 1996) and can be easily handled with cautious actions. This low level of resistance originates from the relatively similar structure and product range of the acquirer (SHB) and the target (HBB). Moreover, SHB has employed some solutions to ease the integration process. However, as implied by the PCC of 0.95, which is far from ideal level 20, the solutions applied by SHB may not be sufficient, or not effective, and can be further enhanced to gain a more positive results.

What has been done?

Culture leaders

No. of respondents interviewed

No. of respondents agree

No. of respondents disagree

Play vital role in reduce conflict

Do their good job in case of HBB acquistion by SHB

Should inform empoyees of the posible conflicts.

Answering the interview, 100% respondents acknowledge leaders’ role in culture integration process. They agree that the leaders belief on the new culture would have much influence on employees’ perspective, and that the leaders can do many things to lighten the culture clashes. This results strongly support for the hypothesis 5. The research result replicates Bennis and Nanus (2003)’s finding that, “the single most important determinant of corporate culture is the behavior of chief executive officer {…}. He or she is the one clearly responsible for shaping the beliefs, motives, commitments and predispositions”. However, in this specific case, respondents claim that SHB leaders did nothing to solve the culture conflicts in new entity, despite the obvious difference in culture of two banks, and its consequent impacts on employees, performance and corporate culture. 6/7 respondents agree that if they are aware of the difference, and actively prepare for the future integration, there would be less clashes. The remaining respondent claims that if the culture difference was recognized beforehand, then the actual merger did possibly not happen. This is because the big gap between two cultures as well the real difficulties that new SHB was to face would dispirit any initiatives of the acquirer on the deal.

However, to her perspective, the researcher found that SHB has some initiatives to lighten the difficulties.

Firstly, former SHB had realized the importance of corporate culture in merger, and plan for a business approach that reduce culture conflicts between two banks. Thereby, new SHB will let HBB maintain its operation base on its unique strength and only involve in main activities such as treasury, credit, accounting, human resources and information technology (Merger Proposal, 2012).

Secondly, they appoint one senior leaders together with several group to permanently work in Habubank 4 months before the formal announcement. The purposes include (i) getting familiar with Habubank culture and understanding Habubank procedure, so that facilitating the future integration; (ii) stabilizing employee psychology and keep the talents employees if they want to move and (iii) preventing the acquired bank from further losses. This leader and his team has successfully perform their job to the extent that avoid further poor financing. However, in other two duties, it is likely that the culture leader’s role does not work. Many experience-rich employees keep moving and the culture gaps were not identified. The culture leader did not pay much attention to capture the Habubank culture but defaulted that SHB culture would infringe, regardless whichever the more advantageous, HBB’s or SHB’s.

The culture leaders were inconsistent in words and in actions. They said that there would be no change in the employee interest before and after merger, and that employees would be positioned base on their ability and their preference. However, huge changes occur so far, employees have no chance to raise their voice and preference, and a lot of benefit was infringed, job allocation is made at SHB disposal…

Thirdly, SHB has arranged a series of training courses which aims at making Habubank employees be familiar with SHB culture and working procedure. The training attendance is mandatory and HBB employees is requested to take the pass-check after the course. The pass level is relatively high, around 80% or more, which enforces the employees to spend time reading and getting familiar with new policy.

There are many actions have been carried out by SHB, but all respondents did likely not realize the bank efforts. This can be because (i) the results of those actions are not significant and/or (ii) what has been done does not meet employees expectation and implies for a need to facilitate more solutions to solve the conflicts.

7/7 of interview participants confirm the role of cultural leaders in facilitating integration process and reduce the cultural clashes. In HBB acquisition by SHB, participants acknowledged the role of cultural leaders but also pointed out that SHB cultural leaders need to do more to activate their efficient role in removing conflicts.

4.2.4.2 What should be done.

Despite the acknowledgement of the possible culture conflict, the acquirer did not focus its resource in indentifying the culture gaps and had a specific procedure to assimilate the differences. Like many other mergers, Habubank acquisition by SHB does not have a proper culture due diligence. The financial and legal aspects spend much time, and form a focus of the leaders. More over, recent initiatives of new SHB are regarded as the striving to teach new culture to HBB employees, not to abate the culture conflicts. PCC index at 0.95 implies that the bank should do more for the better compatibility. Research respondents raise some solutions to improve the situation:

First, the post merger bank should have timely and visualized encouragement for the minor success that new comers have. SHB’s old ones and new ones should get rid of differences in terms of personality and behave for the sake of new entity. Be more objective and fairer in making assessment towards former HBB employees to have appropriate human resource policy. And remember that, leaders’ role is to re-shape and change employees’ behavior, not to criticize them (Appelbaum et al, 2000).

Second, the bank should recognize the differences in culture between two organizations. Appraise those differences completely and equally to maintain what is good and reasonable. Schraeder and Self (2003) and other researchers call this suggestion as “learn from best practices.” Focus on the similarity of the two cultures in the early stage to reduce level of conflict and resistance and create a friendly and harmonized environment, then insert the important culture characteristics that the bank would like to maintain in later stage. Let employees get acquaintance with new culture for a certain time.

Third, the bank should identify employees preferences and let them have chance to raise their voice. Understand and share the feeling of employees. This is the issues of communication that Bennis and Nanus (2003) mention in their work. Leaders must be open and have effective two way communication with employees. Board of Directors should keep close interact with business units to encourage employees psychology and reduce the integration time. Create the employees’ trust in the policy as well as the management team of the bank.

Last but not least, for business units, in addition to the focus on handling bad debt, the new bank should make assessment towards the customers so that applies more suitable policy to good customers, avoid further customers loss, and reduction of employee belief at work.

Chapter conclusion:

In this chapter, the researcher analyzed primary and secondary data by both quantitative and qualitative method. The researcher also discussed issues relating to the hypotheses to see if the case of HBB acquisition goes with the fact discovered by previous authors. The results confirm predecessors’ finding about negative impacts of culture issues on employees turnovers, short term performance and value of the post merged entity. However, due to constrains of making analysis on short term data, where many coincidences negatively affect the short term value, the verification of hypothesis 3 is rather weak. The role of culture leaders are also acknowledged by interviewees so that hypothesis 4 is supported. Recommendations are introduced to equip the bank board of management some manners to handle with current situation.

Chapter 5: Conclusion and Recommendation

Chapter introduction

In this chapter, the author will discuss the main contributions and the limitations of research. The chapter also points out how the objectives and hypotheses raised in chapter 1 and 2 of research are obtained. Recommendations are made based on the theoretical and empirical findings. Implications for future research will be included in this chapter.

5.1 Research conclusions

The research analyze the impact of culture conflicts on the operation of post merger firm and take the case of Habubank acquisition to see how it happens in this specific case. After doing the research, the author finds that the case mainly resembles precedents findings.

With regards to the first objectives, deepening the knowledge of corporate culture, the author has discussed wide range of concepts and academic theories relating to corporate culture issues. This involves the definitions of culture, its factors and dimensions. Through chapter 2, the readers can have an in dept knowledge about how other academic researchers assess the issues and what are their empirical findings. This help the author to have a firm theoretical background before implementing the research. Objective 1 is achieved in chapter 2.

To address the objective 2, 3 and 4, the researcher has critically review relevant literature about impacts of culture conflicts on employee turnover, corporate performance and value in chapter 2. Through the review, the author acknowledge findings of the previous researchers on the tendency of the impacts. The author then take the case of HBB acquisition to see how culture conflicts impacts on those factors, to see whether her findings verify or go against existing opinions. To do so, the researcher designs a questionnaire and interviews with employees and management level of the post merger bank to find out what happens in this specific case. The result shows that there are the difference in corporate culture of two banks, and this lead to the conflicts among the “old” and “new” comers. This culture conflicts take part in the increase of employee turnover, short term decrease of corporate performance and value. These results confirm hypothesis 1, 2 and 3 in chapter 2, and meet the research objective 2, 3 and 4 raised in chapter 1.

Objective 5 refers to the investigation of leaders role in handling the culture conflicts. The researcher has compiled relevant writings to see if the leaders plays an influent role in dealing with the culture clashes. As though, the literature shows that culture leaders role is so important and these leaders can help facilitating the integration process. With this theory, the researcher considers the case of HBB acquisition to see if theory is true. Through the interview and self observe, researcher found that culture leaders can take important role in facilitating the integration by avoiding conflicts and reduce level of resistance. The fifth objective and hypothesis 4 of the research have been addressed in chapter 2 and chapter 4 so far.

5.2 Research contributions

5.2.1 Contributions to knowledge.

M&A nowadays becomes a common strategic option to gain economic of scale, financial or technology synergies. However, despite the popularity, the number of successful deals only take a minor part. Only 80% of M&As fail to meet financial goals (Nahavandi and Malekzadeh, 1993) and 50% do not reach initial expectations (Cartwright and Cooper, 1995; Sally, 2007). Reasons for such a high failure rate is that M&As are designed with financial and legal aspects as primary conditions, but lack of sufficient concerns on psychological and cultural issues (Gilkey, 1991, Oon, 1998, Simpson, 2000). Culture differences, together with bad management over human resources sensitive and sophisticated psychology become a key determinants in failure of a merger. However, there is a gap in literature about an in-depth revision on the culture conflicts in M&A and its influences in many aspects of firm’s operation. The research is made with desire to close this gap. By compiling literature on the captioned issue and linking with the practice systematically, the research has come to some findings which have referential value and contribute to knowledge.

5.2.2 Contributions to M&A management activities.

Together with the economy development in last decade, the number of banks and its growth rate increases radically. However, the recent crisis has shown the weakness of the bank. Many banks have negative growth rate, suffer losses and bear high bad debt and low liquidity. Some banks would even likely go bankruptcy without close supervision and control of State Bank of Vietnam. To solve the issues, SBV decided to restructure banking system in order to increase the bank financial strength. The restructure solutions include M&A between weak and healthier banks, refinance of SBV and/or state owned banks.

Understanding the impacts of culture differences on the operation of post merger entity will help any corporation interesting in M&A being aware and well prepare for the forehead obstacles. The research is made with author desire that people have more comprehensive understanding about M&A, which is not only a smart strategic move with many potential synergies but also bear hidden dangers.

5.3 Research limitations

In addition to research methodology limitations mentioned in chapter 3, the research bear some other limitations that the readers should recognize as follows:

Firstly, there are many impacts of culture conflicts that were not mentioned in this research, for example: reputation of the post merger corporate, the changes of corporate contributions to the social responsibilities etc. Similarly, in addition to culture conflicts, there are many other factors attribute to the changes in turnover, performance or value, for example: leadership styles, job design, model of motives and especially the human resource policy. However, due to the limitation in time frame and resource accessibility, the author can only choose culture issues as the key factors to analyze in this research.

More over, regarding the reliability of the findings, the author also realizes some limitations. First, the researcher measures the data in relatively short period after merger. However, to confirm the nature of the fact, it needs to consider in a longer time to see the consistence of the data. Secondly, the result is more or less subjective, because the researcher is member of post merger bank and use self observation method to collect data.

In addition, the research is only made in population from 5 branches and 3 functional departments, while there are tens of departments at Head Office and 43 branches nationwide. It means that the finding is true for chosen samples only and does not represent for the whole system.

Finally, the research is analyzed totally in the view of the target employees. The author believes that on the perspective of the acquirer, there will be different approaches about difficulties relating to the culture integration process.

5.4 Recommendations

Culture conflict is a certain that almost M&As have to experience due to the differences in culture between acquirer and target and influence many aspects of after merger firm. Because it is a certain, it is impossible to avoid those impacts. However, the conflicts and consequent impacts can be reduced if relevant parties well prepare for it, and have proper and prompt responses for any difficulty aroused.

In M&A, it is important that communication must be well handled. Communication should be sufficient to the extent that employees have

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