2024
Individual Assignment 3
OUTSOURCING AND MERGERS AND ACQUISITIONS
AJEETH RAMANAN
COURSE CODE: DU-HRM3284
COURSE TITLE: MI-NOV23-HUMAN RESOURCES PLANNING AND
DEVELOPMENT
PROFESSOR NAME: DONNA VERITY
DATE SUBMITTED: 01/28/2024
1.
Recently a major transportation company in Canada approached NorOnt and indicated
that they could provide all the organization’s transportation needs between plants and to
customers for a thirty percent decrease in their transportation costs. To this point in its history
NorOnt had managed transportation internally and this outsourcing opportunity looks like a great
deal. Is it? The VP Finance, Dean Ellerton has asked you to look into it. Explain in detail the
implications of NorOnt proceeding with this outsourcing decision.
As an advisor to the VP of Finance, I will look into the benefits and loss factors before deciding prior
to outsourcing.
If NorOnt is considering to outsource, I foresee the following advantages:
a.
Financial Advantage – With outsourcing the transportation vertical, NorOnt is looking at a
cost reduction. It would save on the fuel and operating costs for the wholly owned subsidiary.
b.
Strategic focus – With outsourcing the transport business, NorOnt can concentrate all its
focus on its core business of preparing food products rather than running a transportation ancillary.
c.
Specialized service – The transportation company is in the business of providing transport
solutions to the organization. Since that is the company’s core business, they would be able to
provide a customized and specialized service to NorOnt. NorOnt can provide the transport company
with the requirements and the company would be able to tailor make a solution for NorOnt.
d.
Improved service – When a service contract is signed between two parties, clauses about
the service delivery quality are clearly discussed. There is a standard of service quality which is set
and if there are any discrepancies, the client org could look at possible penalties or even contract
termination. This results in marked improvement in service delivery for those verticals.
e.
Advanced technology – As a transportation company, the supplier would have the state-ofthe-art fleet with trained drivers. As for NorOnt, since transportation is not their core business,
upgrading their fleet or infusing newer technology to their transportation arm would not be on the
top of the priority lists.
I would have the following as the counterpoints for outsourcing.
a.
Projected benefits versus actual benefits – For organizations who have previously involved
with outsourcing, they have reported a higher cost that forecasted as the management of the
outsourced activity has a lot of hidden costs involved. NorOnt would have to do its due diligence in
understanding whether there is truly a 30% reduction in transportation costs. Especially considering
there is an in house transportation team and with outsourcing, they would have to look at
downsizing that team.
b.
Service Risk – The vendor would only provide the services that is agreed upon. In case there
is any improvements to be made or if the needs of the organization change, the contract has to be
revisited. For NorOnt this could be an issue since the company could look at downsizing or increasing
its capacity in the future.
c.
Employee Morale – With outsourcing the morale of the employees in the organization takes
a hit. Especially with the team members who are part of the department which is being outsourced.
In the case of NorOnt, if they outsource the transportation department to a third party, they stand
the risk of losing the current employees in the process. This in turn would create an all-pervasive
morale hit.
d.
Security Risks – With outsourcing there is always a risk of confidential information leaking.
In this case, the third party would be privy to knowledge about the suppliers and customers of
NorOnt and its supply chain management. There is always the risk of such sensitive information
leaking out to the competitors.
After all considerations and looking at positives and negatives, I will advise VP Dean Ellerton to go
ahead with outsourcing. The projected benefits outweigh the drawbacks and the company is looking
to restructure and realign its goals. Outsourcing its transportation needs would assist the leadership
team in only focusing on the core business of the organization.
2.
NorOnt is considering the acquisition of a food company in Japan that produces some
similar products but operates on a much smaller scale than NorOnt. What are the benefits of an
acquisition of the Japanese firm? To NorOnt? (5 marks) To the Japanese firm? (5 marks)
The following are the benefits of acquiring the Japanese firm for NorOnt
a.
Access to a newer market – With the acquisition of the firm, NorOnt would gain entry into
an entirely new market without having to establish first within the geographical location.
b.
Earning goodwill – With the acquisition, NorOnt will enter the market with the accumulated
goodwill of the Japanese firm. They will not start off as an unknown entity in Japan.
c.
Technical knowhow – With the acquisition, NorOnt will gain the skillset of the employees of
the Japanese firm. They are adept in understanding the needs of the local customers and are
d.
International exposure – For the employees of NorOnt, this would provide an opportunity
to work in a different market than just Canada.
The following are the benefits of acquisition by NorOnt for the Japanese firm as follows:
a.
Financial inflow- With the merger, the Japanese firm will be infused with cash flow.
Especially with the Canadian dollar being stronger than the Japanese Yen, there would be a
significant investment to its capital.
b.
Access to international technologies – With NorOnt’s investment, the Japanese firm will
now be exposed to the technology used by NorOnt. It would benefit from understanding the scope
of the business from a North American organizational view.
c.
Increase in market share – With the merger the Japanese firm would be able to scale up and
increase its market share.
d.
Increase in reputation – As with the merger, the reputation of the Japanese firm would also
increase accordingly as it has now joined forces with a renowned Canadian organization.
3.
What are the risks to each company?
I foresee the following risks for each company:
a.
Success rate of mergers – There are multiple examples of failed mergers. Many studies have
reported that only about 15% achieve the financial goals that were envisioned. The success rates
also depend quite heavily on the sector and size of the organization. For NorOnt, with the size and
scale it operates, acquiring this Japanese firm might not yield the results it is considering.
b.
Financial Impact – For many reasons, the financial returns are rarely those that were
projected. When a premium price is paid to acquire, the company is unable to service the debt or
recover the investment.
The financial health of NorOnt is currently fragile and taking over the Japanese organization might
prove detrimental.
c.
Impact on Human Resources – Human resources are the major impacted group when it
comes to mergers. There are evident job losses where the employees are stressed. Those employees
who survive will live with constant anxiety. There is a general discontent amongst the employees.
Especially in this scenario, where the Japanese employees would be the most vulnerable to change
management.
d.
Cultural issues in Mergers – This is the major bump in the road. Belcourt and Podolsky
define culture as: Culture is the set of important beliefs that members of an organization share.
These beliefs are often unspoken and are shaped by a group's shared history and experience. Culture
can be thought of as the "social glue" that binds individuals together and creates organizational
cohesiveness. When a merger happens, there is major culture clash between the organization. This
amplifies in the case of an international takeover. It’s not just the corporate culture that is in
crosshairs but also the general living style of the people in the respective countries. NorOnt has been
a traditional Canadian company looking to takeover an organization steeped in Japanese culture.
There is a stark difference in the working styles of both countries. There would be situations where it
could reach to some levels of hostilities.
NorOnt is in a delicate position right now with its Canadian operations. The leadership team need to
be cognizant with its take over plans.
4.
You have been assigned by the Seguins to head the consulting team that will lead the
transition. What advice will you give both companies so that the acquisition has the best chance of
success? (20 marks)
As a HR professional, I will ensure the following steps are undertaken to ensure there is a best
chance of success from a HR standpoint.
a.
Securing a contingency plan – A contingency plan needs to be created and implemented
once the deal is in play. This plan would outline the point of contact or the merger coordinator who
will spearhead this acquisition. It will also encompass the chain of command, methods of
communication etc.
b.
HR Due diligence – I would next conduct an HR due diligence review. There would be a
thorough research on hundreds of various verticals such as tax implications, employee contracts,
collective agreements, cultural differences etc.
c.
Appointing a transition team – The next step I would undertake is to appoint a transition
team. This is important due to urgency of the Mergers & Acquisition situation. A transition team will
be in charge of the following tasks:
i.
Urgency – Executing urgent staffing decisions such as staffing, hiring, &
evaluating. Once the merger decision is announced, the decisions about
retention of employee and reassignments of tasks have to be performed.
ii.
Information gaps – The transition team will ensure plans of both organizations
are aligned when the merger happens. Handling redundancy of professionals,
matching the different expertise both organizations bring in, etc.
iii.
Stress – A transition team would be pivotal in alleviating the stress that would
stem up with the merger among the employees. Laying down clear ground rules
and helping employees navigate the change.
d.
Selection – Reductions and restructuring are integral part of a merger. Tough decisions have
to be taken. Typical scenarios include two thirds of the workforce being reduced. Key workers need
to be identified and motivated to stay on. Transitioning employees need to be provided the support
they require and all the compliances are needed to be followed. There is always the dread about job
safety and the general direction that the new organization takes which needs to be taken care as
well.
e.
Compensation – When two companies merge, they would also have to align on a common
compensation methodology. Integration of benefits plans, Incentives, uniform distribution of
compensation have to be looked upon in detail. Conducting a cost-benefit analysis of benefit
package and ensuring there are no reductions is a major concern.
f.
Performance appraisal – With an impending merger, the performance of the workforce
might have a downward shift due to stress. Focussing on long term goals might take a back seat and
more short-term goals would take its place. The employees would need constant positive
reinforcement about the for the work done in the new combined workplace. Performance appraisal
methods would also have to be redone to combine the best of the both orgs.
g.
Training & Development – Once the strategic plan has been developed and with new roles
in the pipeline, more developmental programs need to be initiated for the managers and the
employees.
h.
Labour relations – Unionized employees are covered under a collective agreement. With a
merger, the acquiring organization would be required to continue the employment of the unionized
employees as per the agreement. The union experts are to be kept abreast of all the developments
leading up to the merger.
References:
a. Belcourt, M., & Podolsky, M. (2019). Strategic human resources planning (7th ed.). Nelson
Education Ltd.