Resizing The Organization 20 pdf

Proposition 6: The degree of success by a competitor at attracting customers and revenue from the extent to which the competitor is successful in recruiting employees from the resizing c

below the local industry average in both deposit and loan growth during the period of the case, one performed above the local in-dustry average in loan growth but not in deposits, one performed above the local industry average in deposits but not in loan growth, and three performed substantially above average in these two in-dicators during the same period Thus, five of the ten organiza-tions represented in the sample did not notably profit from the merger, whereas the remaining five were successful or very suc-cessful at gaining deposits and new loans from former customers

of the merged bank

After the managers and executives agreed to participate, in-terviews were scheduled with them, patterned after the protocol used by Bastien (1989), in which the interviewer asked the re-spondent to remember the first time he or she became aware that the merger was about to take place The respondents were asked about their emotional reaction to the news, the reactions of those around them, and their action decisions at the time Subsequently, they were asked to reconstruct their perceptions of the situation

as it emerged over the next six months A question guide was de-veloped to ensure that responses to all of the propositions from the literature were attained The interviewer maintained notes of each interview Following each interview, responses to the hy-potheses were categorized according to bank performance (poorer-than-average performance on both indicators, better than average in one but not both, and better on both indicators) Fur-thermore, the form of the interviews allowed the researcher to ex-plore other areas, which also were coded by bank performance category

Results

The results for the case study are summarized in Table 8.2 As this table indicates, the first proposition was fully supported None of the respondents representing banks in the unsuccessful no-growth category perceived any opportunity whatsoever in their rival’s merger Two of these respondents reported that since they were pursuing a geographical and neighborhood strategy and there were no branches of the merged bank in their neighborhoods, they saw no opportunity for attracting customers’ deposits or loans

R ESIZING AND THE M ARKETPLACE 171

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from the merger These results show that when competitors do not perceive an opportunity to take customers and revenue from a merg-ing rival, they will not experience above-average growth in deposits and loans Competitors that perceive a rival’s merger as a growth op-portunity and act to exploit this opop-portunity will experience above-average increases in deposits and loans Respondents from all of the banks performing in the above-average category reported that the merger was viewed as an opportunity and that actions were taken to reap the benefits provided by this opportunity For example, one of the most successful competitors started from another city and opened a branch in the core area of the merging bank

Interviews with respondents representing the five successful banks yielded some modest but interesting findings for Proposi-tion 2 One of the successful competitors had a preexisting pro-gram in place for attracting customers from merging bank The most successful of the competitors pursued the tactic of recruiting staff from the merging bank, yet had no formal program for ob-taining new customers They did not try any additional tactics de-spite the success in attracting new customers as a result of hiring staff away from the merging bank One moderately successful com-petitor implemented initial plans to attract depositors and lendees and was successful by its own standards However, it did not know how to expand on this success and did not pursue any further ef-forts The respondent for the other moderately successful com-petitor reported that the process of keeping up the pressure by experimenting with new competitive tactics was personally very satisfying and profitable, and experimented with several new tac-tics (advertising) over the months of the merger integration Thus, although Proposition 2 was not strongly supported by the case data, the interviews yielded some interesting findings re-garding the differential effects of various tactics used by the more successful competitors

Proposition 3 focused on marketing activities triggered by the announcement of the rival’s merger The resizing itself as a gen-eral and broad activity was the trigger for all five of the community banks’ exceeding industry averages in at least one of the indica-tors However, no specific change event was triggered following marketing action As noted, one of the successful competitors did

Table 8.2 Support for the Propositions.

Level of Support

Proposition 1: Competitors with the

explicit purpose of taking customers

and revenue from the resizing

than competitors that are not

intentionally pursuing these

customers and revenues.

Proposition 2: Successful efforts by a

competitor at attracting customers

company will lead to further efforts

by the competitor.

Proposition 3: Successful efforts by a

competitor at attracting customers

company will be tied to the

announcement of the resizing change.

Proposition 4: The degree of success

by a competitor at attracting

customers and revenue from the

extent to which the competitor is

knowledgeable about the internal

processes unfolding within the

resizing company.

Proposition 5: The degree of success

by a competitor at attracting

customers and revenue from the

extent to which the competitor is

knowledgeable about the resizing

company’s customers.

Proposition 6: The degree of success

by a competitor at attracting

customers and revenue from the

extent to which the competitor is

successful in recruiting employees

from the resizing company.

employ new marketing tactics, but the timing of these activities was not tightly coupled to the merger announcement

Proposition 4 focused on competitors’ knowledge of the situation-specific details regarding what was unfolding inside the merging rival bank This proposition received strong support in the case study Respondents from three of the five successful com-petitors were former employees of the merging banks and claimed

to have kept close personal and social contact with employees at the merging bank In each case, they reported hiring people away from the merging bank Indeed, for the most successful competi-tor, almost all new staff members came from the merging bank, and in the moderately successful competitors, at least one merg-ing bank former employee was hired (in addition to the infor-mant) These employees arrived armed with valuable knowledge about the merging bank, including merger integration problems, dissatisfaction among the remaining employees, and insight into which customers were open to changing banks

Proposition 5 received fairly strong support One hallmark of community banks is their pride in knowing their customers well Indeed, respondents for nine of the ten banks reported a high level of awareness of current customers and a strong orientation toward meeting their banking needs However, the key factor un-derlying Proposition 5 was knowledge of the resizing company’s customers, not one’s own customers Based on the interviews, none

of the banks in the unsuccessful category focused on learning about the customers of the merging bank In contrast, respondents from three of the successful competitors had high levels of current knowledge about customers of the merging bank and expressed a strong concern that the interests of these customers would not be well served by changes implemented at the merging bank One method they used to obtain knowledge about these customers was

to recruit employees from the merging bank All respondents in the growth category reported directly targeting their marketing ef-forts to customers of the merging banks

Proposition 6 received very strong support Among the five community banks in the unsuccessful category, there were no suc-cessful attempts at recruiting employees from the merging bank Among the moderately successful competitors, one executive-level employee in each bank was a former employee at the merging

bank In one case, the hiring was not linked to the competitor’s merger, but in the other it was Among the very successful com-petitors, there was much heavier reliance on employees hired from the merging bank While these competitors certainly were not blind to the customer- and company-related knowledge that these employees could bring, in all cases the respondents asserted that they hired the employees first and foremost because of the known job-related competencies of the employees All respondents from the successful competitors reported being very cautious about using information provided by these employees, making certain that they remained on the good side of both the law and banking ethics

Discussion

These data are rich in implications for practice and further re-search First, the strong support for Proposition 1, with its focus on perceiving and purposively acting on competitive opportunity, is very important Bastien et al (1996) suggested that there always is

a windfall of customers changing their patronage in response to a merger and that this windfall could be randomly distributed across all rivals or could go mostly to a limited subset of rivals, depending

on whether the rivals recognized the opportunity and acted pur-posively to exploit them Certainly in this case, only competitors that recognized the opportunity to attract dissatisfied employees and customers from the merging bank realized above-average growth

in deposits and loans In contrast, the competitors that were blind

to this opportunity failed to reap the windfall of benefits

Two other propositions received strong support in this case study: Proposition 5 examining the level of knowledge about cus-tomers of the resizing company and Proposition 6 investigating success in recruiting staff from the resizing company These find-ings are not surprising, since all three propositions relate to and underscore the importance of customers The strong support for Proposition 5 is nearly as striking as the support for Proposition 1 All five of the high-growth competitors focused primarily on the customers of the merging bank and their discomfort with the newly merging bank For example, one of the case informants had left the acquired bank early in the preacquisition period because

“I just didn’t feel I could offer my customers the service they de-served.” This person still knew some of the acquired bank cus-tomers and knew what issues these cuscus-tomers were anxious about This information allowed the competitor to develop specific mar-keting plans focusing directly on themes of customer unhappi-ness The other informants also personally knew many acquired bank customers and were aware how they reacted to the resizing changes

The first strategic challenge for a competitor of a resizing company is to clearly understand what it will take to keep all of its own current customers The next challenge is to determine the sources of customer dissatisfaction in the resizing company and

to provide products and services that target their unmet needs, restoring satisfaction and gaining new customers in the process Knowing your own customers and knowing your rival’s customers

is important to competitive success in the context of a rival’s merger or acquisition In this particular case, customer knowledge came from personal sources—people personally known to either the case informants or others in their organizations Bastien et al (1996) noted several other methods of securing this information, but in this case, personal knowledge of customers was most effec-tive Much of this personal knowledge of customers and their concerns with the newly merged bank came through former em-ployees of the merging bank hired by the successful competitors

A reliance on employees coming from the resizing bank is the third strongly supported proposition In all five no-growth banks,

no employees were hired from the merging bank, and in all five of the high-growth banks, there was such hiring

All of the successful competitors were aware (mostly through personal contacts) of customer and employee dissatisfaction with the merging banks and believed that bank mergers often offer ri-vals opportunities However, none of the respondents was aware of the merger syndrome (including both customer loss and employee dissatisfaction) as a predictable and general phenomenon Fur-thermore, none indicated that they timed their competitive moves according to announcements of merger change Thus, the poor support for Proposition 3 (timing of competitive activity with an-nounced changes in the resizing company) could simply be a re-flection of the inattention to the integration moves of the merging bank that would naturally stem from not knowing what to look for,

or it could be that timing is not as critical as Bastien et al (1996, 1997) believed it to be If the inattention comes from not knowing about the merger syndrome, then there may have been many op-portunities missed even by the high-growth rivals From the data

in this study, there is no way of knowing

Taken together, data from this study and from Bastien et al.’s earlier research (1996, 1997) suggest some potentially powerful ways in which the perceptual framing of a competitive situation ap-pears related to the motivations operating in the situation Figure 8.2 presents a competitive framing matrix illustrating some differ-ences in how competitors might perceive a rival’s resizing effort

Figure 8.2 Competitive Framing Matrix.

No

No Yes

Yes

Q3: THREAT

Firm’s attention shifts inward (internal focus) Focus =

Blind to competitive growth opportunities provided by the resizing rival; threat rigidity restricts the firm’s range of responses to the rival Problems =

Survival and defense;

protecting the firm’s existence against the onslaught of a resizing rival

Strategy =

Q1: STRATEGIC INDIFFERENCE

Business as usual;

no change in attention Focus =

Blind to competitive growth opportunities and threats to the firm’s own customer base Problems =

Stay the course;

no change of actions Strategy =

Q4: GUARDED OPPORTUNISM

Heightened attention inward and outward (intensified internal and external focus) Focus =

Simultaneous focus on growth and protection may prevent full exploitation of competitive growth opportunities Problems =

Combined offense and defense; grow at the expense of the rival while protecting the firm’s own base of employees and customers

Strategy =

Q2: OPPORTUNISM

Firm’s attention shifts outward (external focus) Focus =

Firm may lose some

of its own employees and customers to the resizing rival Problems =

Offense; growth at the expense of the resizing rival Strategy =

Perceived Opportunity

This matrix provides a basic framework for summarizing the results

of the resizing competitor research to date, linking these findings

to existing research on perceptions of opportunities and threats and their implications for competitive actions and outcomes, and identifying some additional avenues for further research

Respondents from five of the banks in the study reported they did not see the rival’s merger as an opportunity or a threat These banks occupy the first quadrant (Q1) in Figure 8.2, manifesting a position of strategic indifference toward the rival’s merger Why did these community banks adopt a frame of indifference toward the rival’s change? Research on strategic groups suggests one pos-sibility (Fiegenbaum & Thomas, 1995; Olusoga, Mokwa, & Noble, 1995; Reger & Huff, 1993): respondents perceived the resizing rival

as occupying an entirely different strategic group, comprising larger regional or national banks According to this research, firms pay more attention to actions made by close rivals within their own group or cognitive category and less attention to more distant ri-vals perceived as occupying a different group This belief may in-clude actions in the form of mergers, acquisitions, downsizings, and other approaches to resizing the firm For example, some of the community banks in this study might have viewed the rival’s merger as an action taken by a firm located in an entirely different strategic group, an action with little direct impact on the conduct and consequences of their own business, prompting a frame of strategic indifference

Further research is needed in order to explore the role and im-pact of perceived strategic groups on the framing of competitive situations One implication of this study is that it identifies a form

of strategic myopia Focusing too much attention on rival firms and too little attention on customers can block companies from seeing the full range of opportunities and threats presented by a particu-lar competitive situation For example, firms strategically indiffer-ent to resizing in a perceptually distant rival run the risk of not seeing opportunities for gaining new customers from the resizing rival, as well as threats of losing their current customers to the re-sizing rival One pitfall of strategic group mapping and other forms

of competitor analysis is that executives may focus too much at-tention on similarities and differences that exist at the level of rival firms, blinding competitors to opportunities and threats clearly

vis-ible through an analysis of similarities and differences at the level

of customers

Other factors may have played a role in producing the strate-gic indifference of the five community banks Cognitive research suggests that managers develop habitual ways to interpret and act

on experience (Axelrod, 1972; Fiske & Taylor, 1991) Managers fac-ing new or unique situations are less confident of their cognitive frames or schemas, resulting in a more active scanning of the en-vironment and the potential for seeing new opportunities and threats But managers facing familiar or recurring situations are more confident in their schemas, leading to a more passive scan-ning of the environment with a bias toward information search and analysis that confirms the status quo (Fiske & Taylor, 1991; Higgins

& Bargh, 1987) Given the widespread and substantial history of resizing in the banking industry, it is entirely possible that respon-dents at the strategically indifferent banks were inclined to see the rival’s merger as simply business as usual, applying this routinized competitive frame without actively scanning the environment for new opportunities and threats

Respondents at the remaining five more successful community banks perceived the merger as an opportunity Accordingly, they are located in the second quadrant (Q2), representing a position

of opportunism toward the rival’s change As this study demon-strates, banks adopting an opportunistic frame on the situation saw the merger offering growth opportunities They were motivated to reap the benefits of these opportunities and were rewarded for their competitive insights and efforts with above-average increases

in deposits and loans This finding shows that being in the right place at the right time may be necessary to take advantage of com-petitive opportunities presented by a resizing rival, although it is not sufficient to harvest the full range of these opportunities Con-scious and purposive action, coupled with proper market posi-tioning, yields the best competitive gain in the context of a resizing rival Due to their focus on individualized friendly service to cus-tomers, community banks are inherently well positioned to reap the benefits of a resizing regional or national bank

The case reported by Bastien et al (1996) illustrates the remain-ing two quadrants in the competitive framremain-ing matrix In this study, the initial framing of the situation by the competitor of merging

banks was based on fear, uncertainty, and a view of the merger as

a threat Once the competitor began to reap some benefits from the merging company, the fear-based emotional frame on the merger as a threat became a more rational cognitive frame on the merger as a competitive growth opportunity In adopting this new frame on the situation, the CEO of the competitor (also a community bank) adopted a much more aggressive strategy and tactics Several new types of action intended to identify and ap-proach the merging rivals’ customers and employees were taken

A more simplistic framing of a rival’s merger as mere oppor-tunity (Q2) may blind the competitor to potentially debilitating threats to the competitor’s own customer base, resulting in below-average performance outcomes or even losses In contrast, a more simplistic framing of the merger as a mere threat (Q3) may blind the competitor to the significant growth opportunities presented

by the merger or may lead to an increased likelihood of strategic inaction similar in form to that observed in the case of threat or rigidity (Ocasio, 1995; Staw, Sandelands, & Dutton, 1981) Exist-ing research suggests that when the resizExist-ing rival is comparatively large in size, the threat aspect will become salient and will lead competitors to focus their attention on a more restricted range of responses, including increased commitment to an established course of action (Dutton & Jackson, 1987; Greve & Taylor, 2000; Ocasio, 1995; Staw, 1981)

One implication of the matrix is that framing a rival’s resizing

as both a threat and an opportunity (Q4) should result in motiva-tions both to protect one’s own company and exploit the oppor-tunity presented by the resizing rival A related implication is that these motivations should be expressed in actions focused on re-ducing threats to one’s own base of employees and customers, as well as actions aimed at reaping benefits from the rival’s resizing Thus, in quadrant 4, the competitor’s attention is in two directions: toward its own organization, employees, and customers and toward the resizing rival, its employees, and its customers Companies adopting the more simplistic framing of a rival’s merger as a threat (Q3) are characterized by threat-related motivations and actions focused on protecting the firm and its existing complement of em-ployees and customers For organizations adopting the framing of the resizing solely as an opportunity, we should see opportunistic