SA Journal of Human Resource Management

ISSN: (Online) 2071-078X, (Print) 1683-7584

Page 1 of 10 Original Research

Organisational change and the psychological contract at

a pharmaceutical company

Authors: Orientation: Over a period of 6 years, a South African pharmaceutical company had been
Kelebogile D. Magano1
involved in several mergers and acquisitions. These changes had proved difficult for staff and
Adèle Thomas1
staff attrition had risen.
Affiliations:
1
Department of Industrial
Research purpose: The objective of the study was to explore the perceptions of senior managers
Psychology and People about the impact of change on the psychological contract. The sub-objectives were to determine
Management, University of what organisational factors contribute to changes in the psychological contract during periods
Johannesburg, South Africa of change, and the implications of the breach of the psychological contract for the company
Corresponding author: and its employees.
Adele Thomas,
Motivation for the study: As the company was set to embark on further mergers and
[email protected]
acquisitions, the opinions of senior managers about how such changes should be addressed
Dates: are important for the company.
Received: 25 Feb. 2017
Accepted: 17 July 2017 Research design, approach and method: A case study approach was used in this qualitative
Published: 27 Sept. 2017 study. The population comprised 60 senior managers of whom 12 were purposefully selected
for inclusion in the study. A semistructured interview schedule was used to capture the views
How to cite this article:
Magano, K.D., & Thomas, A. of these managers and themes were extracted by means of content analysis.
(2017). Organisational
Main findings: Seven themes emerged which encapsulated the perceptions of senior managers
change and the psychological
contract at a pharmaceutical about the impact of change on the psychological contract during periods of mergers and
company. SA Journal of acquisitions – lack of communication, an absence of planning, lack of employee engagement,
Human Resource less than optimal human resources involvement, lack of preparation of the organisational
Management/SA Tydskrif vir
culture and poor change management processes. These factors need to be addressed to
Menslikehulpbronbestuur,
15(0), a920. https://doi. strengthen the psychological contract of employees during periods of change.
org/10.4102/sajhrm.
v15i0.920 Practical/managerial implications: The study highlighted areas that leaders and managers of
the company should consider when embarking on mergers and acquisitions if the psychological
Copyright: contract of employees is not to be negatively impacted.
© 2017. The Authors.
Licensee: AOSIS. This work Contribution: While caution must be exercised in the generalisation of the findings, companies
is licensed under the in the same industry or those in other industries could use the findings as points of departure
Creative Commons
for considering the elements that should be addressed in change initiatives.
Attribution License.

Introduction
Growing competition has created opportunities for companies to increase market share through
mergers and acquisitions (M&As). However, many M&As fail to create value for the merged
companies (Gomes, Angwin & Yedidia Tarba, 2013) because the complex interdependent sub-
activities of due diligence, negotiations, financing, people integration and organisational culture
have not been synergised (Wei & Clegg, 2014). When implementing changes such as M&As,
leaders tend to focus on business outcomes rather than on the impact the changes will have on
individuals within the organisation (Aggarwal-Gupta, Kumar & Upadhyahula, 2012).

The pharmaceutical company, the subject of this case study, was established in 1990 as the only
South African vaccines importer. At that point, its core business was to provide effective, safe
vaccines to the South African Health Department at competitive prices following cold chain
principles. The company engaged in a series of M&As between 2009 and 2015.
Read online:
Scan this QR In South Africa, the introduction of the Broad Based Black Economic Empowerment Act (BBBEE Act
code with your
smart phone or No. 53 of 2003) saw an increase in M&A transactions within the South African context (Thayser &
mobile device Dada, 2007). The publication of the Revised Codes of Good Practice required companies to review
to read online.
their strategies as the old focus on equity ownership became less important. Because of these

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 Page 2 of 10 Original Research

codes, certain aspects of BBBEE, such as black participation information technology and operations who must work with
in businesses and procurement from black businesses, the new partners (Penava & Šehić, 2014). Similarly, senior
became increasingly important (Thayser, 2009; Thayser & executives involved M&As mostly focus on the strategic fit
Dada, 2007). In accordance with the legislative environment, of the merging organisations, not on cultural fit (Bauer &
in 2008, the company sold 40% of its shareholding to a Matzler, 2014), and may not consider the human element in
100% black-owned company. This sale saw the organisation the running of the operations postmerger (Rottig, Reus &
becoming the first black economically empowered healthcare Tarba, 2014). However, Nohe and Michaelis (2016) note that,
company in South Africa as well as the only wholly owned with acquisitions, it is important that the acquiring organisation
South African vaccines importer and distributor. The gains a holistic perspective of the target organisation.
shareholding was subsequently increased from 40% to 51%,
thereby transforming the company from an empowered Various factors are important during periods of M&As.
company into a black-owned and controlled company. Communication is crucial during such processes and the lack
of a systematic communication method for liaising with
Prior to the M&As, which impacted approximately 300 employees can be an impediment to successful postmerger
employees, no human resources (HR) due diligence was integration (Herold, Fedor, Caldwell & Lui, 2008). Effective
conducted to prepare and mobilise the workforce for the communication includes aspects of timing, frequency,
organisational changes. The negative impact of missing this honesty and management reliability and approachability
critical step became evident when the best talent began (Brakman, Garita, Garresten & Van Marrewijk, 2008). Top
leaving the company with attendant declining motivation executives are critical to the leading of any change process,
and lost productivity. including setting out the communication agenda (Penava &
Šehić, 2014). Senior management must drive the communication
strategy with a consistent message, assuring all stakeholders
Purpose that the process is efficient and effective, and providing
The objective of the study was to explore the perceptions reminders about the rationale for the change (Angwin 2004).
of senior managers about the impact of change on the
psychological contract. The sub-objectives were to determine The management of HR is a major determinant in the success
what organisational factors contribute to changes in the of the integration postmerger (Alfes, Truss & Gill, 2010).
psychological contract during periods of change, and the Employees of newly merged companies are likely to be
implications of the breach of the psychological contract for exposed to changes in their psychological contracts that
the company and its employees. affect their performance and engagement (Coyle-Shapiro &
Kessler, 2002; McDermott, Conway, Rousseau & Flood, 2013).
The management of HR is important both pre- and
Literature review postmerger in order to address issues of uncertainty about
Change management practices during mergers and matters of job security and the future, as talented employees
acquisitions are often lost during periods of change (Creasy & Peck, 2009).
A merger is the combination of two-share capital, almost
equally sized organisations. The two organisations take the Lack of attention to employees at this time may also result
best of each to form a new entity, sharing resources and in resistance to change (Penava & Šehić, 2014) which
corporate objectives (Filho, 2014). An acquisition occurs when manifests itself through negative attitudes and behaviours
an organisation takes ownership by purchasing majority towards the acquisition or merger (Choi, 2011). Resistance
shares in another organisation (Gomes, Weber, Brown & must be managed because it can influence successful
Tarba, 2011). Although M&As are different legal transactions, postmerger integration and it affects the inputs and the
they tend to be treated similarly in the literature (Al-Laham, willingness of employees to participate in the integration
Schweizer & Amburgey, 2010; Bowman & Ambrosinni, 2007). process (Kyei-Poku & Miller, 2013).
Various steps must be taken to ensure that the merged entities
function optimally (Sun, Peng, Ren & Yang, 2012). Such steps Organisational culture is ‘the deep structure of organisations,
include undertaking a due diligence process, involving HR in entrenched in the values, beliefs and assumptions held by
the management of the process, communicating to employees, employees’ (Stahl & Voight, 2008, p. 163). Organisational
developing culture compatibility and ensuring governance cultural misalignment is a major impediment to successful
around structures and processes. M&As as employees bring to the workplace their own
particular ways of operating and their preferences and
Due diligence and postmerger integration should be planned desires based on the culture of the organisations that have
simultaneously and managed as ongoing processes during the served as a reference point for them. Even in optimal
premerger phase (Weber, 2011). Effective due diligence leads situations, it can take time for employees to assimilate into a
to a purposeful acquisition strategy for the merging companies single culture (Chatterjee, 2009).
and thus is an important process (Ceausescu, 2008); inadequate
due diligence increases the risk of failure (Sun et al., 2012). The The psychological contract
process of due diligence normally involves financial staff and The psychological contract refers to the exchange agreement
is not extended to other leaders in areas such as HR, between the employee and employer (Rousseau, 1990) and

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involves perceived obligations that centre on seeking commitment and less job involvement (Wagner & Victoria
agreement on employment terms (Vantilborgh et al., 2014). Garibaldi de Hilal, 2014).
Psychological contracts are not static and are continuously
changing as a result of employee experiences during Proposition 2: Performing a due diligence exercise is important
employment (Aggarwai & Bhargava, 2009; Chaundry, Coyle- prior to the merger or acquisition in order to promote the
Shapiro & Wayne, 2011). The psychological contract involves psychological contract between employer and employee.
employee belief of what the organisation should offer and
what the employee should give in return (Guest, 2016). The M&As generally involve extensive organisational change
psychological contract invokes certainty by creating, in for the acquiring, the acquired or the merged organisation
employees, a sense of predictability, job security and control (Gomes et al., 2013). Marks and Mirvis (2001) indicate that
(Sverdrup, 2012). in most M&A activities, HR issues are neglected and HR
practitioners do not play a central role in the process. If a
Breach of the psychological contract involves a perception merger or acquisition is to be successful, HR needs to be
that the company has reneged on the obligations that it involved actively throughout all the stages of the M&A
promised to fulfil (Cassar & Buttigieg, 2015; Piccoli &
process (Gomes, Angwin, Peter & Mellahi, 2012; Zhang
De Witte, 2015). Perceived fulfilment or psychological
et al., 2015).
contractual obligations influence employee attitudes and
behaviours such as job satisfaction and perceived job security
Proposition 3: During periods of strategic change such as
(Ahmed, D’Netto, Chelliah & Fein, 2016; Payne, Culbertson,
M&As, key talent can be lost because of breaches of the
Lopez, Boswell & Barger, 2015), organisational citizenship
psychological contract.
behaviours, turnover intentions and actual turnover (Bauer &
Matzler, 2014) and motivation and performance (Weber &
Many acquiring companies lose key employees soon after the
Fried, 2011). Maintaining organisational commitment is a
deal closes (Steigenberger, 2016) and, if uncertainties exist,
challenge during periods of organisational change (Connelly &
Gallagher, 2004) as employees tend to maintain their key employees look for other alternatives (Pohl, Bertrand &
commitment to the old employer rather than committing to Ergen, 2016).
a new employer (Kessler, Coyle-Shapiro & Purcell, 1999).
Proposition 4: The existing organisational cultures of the
In order to address the research objective of exploring the merging organisations can result in a clash of cultures that
perceptions of senior managers about the impact of change impacts the psychological contract between employer and
on the psychological contract, four propositions emanating employee.
from the literature review are posited.
Culture is critically important to business success (Viegas-
Proposition 1: Psychological contract breach can occur during Pires, 2013), but changes in organisational culture through
periods of organisational change. M&As can lead to culture clashes and result in employee
unhappiness (Marks & Mirvis, 2001).
If not handled sensitively, organisational change can
break the psychological contract between the employee In summary, Table 1 notes the alignment of the propositions,
and employer, resulting in counter-productive behaviours the literature review and the research objective or sub-
such as the intention to leave, reduced organisational objectives.

TABLE 1: Alignment propositions, literature and research objective or sub-objectives.

Proposition Literature Link to objective or sub-objectives
Proposition 1
Psychological contract breach can occur during periods of Aggarwai and Bhargava (2009); Chaundry et al. (2011); To understand how the psychological contract is affected
organisational change Conway and Briner (2009); Khalid and Rehman (2011); during periods of change
Rousseau (1990); Sverdrup (2012); Vantilborgh et al. (2014)
Proposition 2
Performing a due diligence exercise is important prior to Brakman et al. (2008); Ceausescu (2008); Creasy and Peck To determine what organisational factors contribute to
the merger or acquisition in order to promote the (2009); Gomes et al. (2013); Marks and Mervis (2001); Stahl changes in the psychological contract during periods of
psychological contract between employer and employee and Voight (2008); Sun et al. (2012); Weber (2011); Zhang change
et al. (2015)
Proposition 3
During periods of change such as M&As, organisations Mergers as instigators of change: Gomes et al. (2011); Sun To understand the implications of the breach of the
can experience loss of key talent et al. (2012) psychological contract for the company and its
Change and change management: Alfes et al. (2010); employees
Angwin (2004); Bauer, Coyle-Shapiro and Kessler (2002);
Bauer and Matzler (2014); Brakman et al. (2008); Creasy and
Peck (2009); Herold et al. (2008); Khalid and Rehman
(2011); McDermott et al. (2013); Rottig et al. (2014)
Loss of key talent: Choi (2011); Kyei-Poku and Miller (2013)
Proposition 4
The existing organisational cultures of the merging Marks and Mirvis (2001); Viegas-Pires (2013) Implications of the breach of the psychological contract
organisations can result in a clash of cultures that impacts for employers and employees
the psychological contract between employer and
employee

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Method recorded on a digital voice recorder with the permission

of the participants. While an interview guide served to guide
Research approach the interviews and to provide a broad structure in terms of
The choice of a qualitative methodology was motivated by the areas of investigation, participants were encouraged to
the desire to explore issues surrounding a problem for which embellish on the issues and such embellishments allowed for
greater information is needed (Domegan & Fleming, 2007). the probing of the issues under consideration.
Qualitative methodology results in data-rich descriptions
that are coherent and can advance understanding of the social Data analysis and interpretation
phenomenon under investigation (Marshall & Rossman, Key themes were identified after a content analysis resulted
2010). Accordingly, the study was positioned within an in a grouping of emerging issues from the data (Leedy &
interpretivist paradigm where reality consists of reported Ormrod, 2005). The propositions were used as a framework
subjective experiences of the external world (Erikson & for the interpretation of the data.
Kovalainen, 2008).
Validity and reliability of the data
Research design To ensure face validity of the measuring instrument, the
A case study design in a single organisation was used to questions were piloted with five managers from the finance
allow for the exploration of the manner in which individuals department under the same conditions as those that prevailed
construct meaning within the real-life context (Yin, 2009). in the main study.

Population and sample Lincoln and Guba (1985) propose that qualitative studies
must be trustworthy by being credible with the research
The population comprised all 60 senior managers in the
accurately identifying the issues under study. The present
company. Non-probability, purposive sampling was used
that afforded focus on the particular characteristics of a study sought to uphold this ideal by three independent
population of interest in order to best allow the research researchers separately checking the data emerging from
question to be answered (Marshall & Rossman, 2010). the interviews. Lincoln and Guba (1985) further note that
the study must be dependable. This aspect was addressed
The sample consisted of 12 senior managers who by the transcription of detailed and accurate content
actively participated in the daily supervision, planning and provided by the research participants. Further, the concept
administrative processes of the company. All were located in of transferability (Lincoln & Guba, 1985) was adhered to in
Band D reporting into Band E of the Paterson Grading system that the study allows for the findings to be applicable in
(Paterson, 1972). All were employed at the organisation other contexts through the use of ‘thick descriptions’ (Geertz,
during 2009 and 2015 when the organisation was undergoing 1973) that can be considered in other settings. Finally, the
the changes. By the use of such selection criteria, an attempt concept of authenticity (Lincoln & Guba, 1985) was addressed
was made to ensure that those providing information could by fairly representing the data and by reporting the findings
comment sensibly on the issues under investigation. in a manner that allows for a greater understanding of social
situations and the perspectives of a variety of people.
The participants included seven males and five females: three
were African, one was mixed race, one was Indian and seven Findings
were white people. Tenure with the organisation ranged
between 5 and 22 years. All participants had undergraduate Seven themes, perceived by senior managers as being
degrees with some pursuing postgraduate studies. important for the psychological contract during periods of
change, emerged from the data: communication, planning,
leadership, employee engagement, the role of the HR
Interview guide
department, organisational culture and change management
Based on the literature reviewed, an interview guide with
processes. Qualitative comments provided by participants
semistructured, open-ended questions were constructed to
(noted as Participant 1, Participant 2, etc.) are interspersed
guide the researchers in the probing of issues. The questions
with the reporting of the findings.
focused on the issues of promises made to employees and
change management during the periods of M&As. Examples
of questions included: ‘What changed in your working Communication
conditions when there was a merger or an acquisition?’ ‘Can All participants agreed that communication plays a critical
you provide an example of a time that a promise made to you role in change processes such as M&As. Two central issues
was broken by the company?’ ‘Please describe the changes emerged around the theme of communication: communication
you experienced’. relating to the merger or acquisition itself and communication
relating to people issues.
Data collection
The semistructured interviews were conducted at the All participants highlighted the need for timeous
participants’ place of work in Gauteng. All interviews were communication concerning any change initiative. Eight

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participants agreed that the conclusions of the deals were in the organisation’s own abilities. Furthermore, potential
communicated to employees using verbal and written forms liabilities should have been identified and investigated further
of communication although these sessions were perceived and not been taken at face value. (Participant 12, Indian male,
acquired company)
as being reactive on the part of management after rumours
of pending deals emerged. Email was the most frequently I think the biggest thing within all these acquisitions was a lack
used communication channel and eight participants of a clear strategic direction and leadership. I know for a fact that
indicated that they would have preferred face-to-face and there has been a downturn in profits and profitability … if you
look at the figures, we’re going in the wrong direction.
direct communication over written communication. Four
(Participant 2, African male, acquiring company)
participants indicated that they became aware of the deals
through the ‘grapevine’: The involvement of people is a critical component in the due
diligence process, as it is those people who will make the due
Well, I read the newspapers. I hear mergers here and there, diligence process work. (Participant 12, Indian male, acquired
people are angry, people are being retrenched – not that I know company)
the difference between a merger and an acquisition. (Participant
4, white male, acquiring company)
Seven participants felt that the formation of the new company,
I think there should have been earlier communication which was with its merged and acquired components, provided the
honest rather than vague. I mean look at the X deal, no one knew
company with an opportunity to formulate a vision, mission
about it. But I think you show respect to people by involving
and new strategic objectives. However, this did not happen
them and I don’t think we got that quite right. (Participant 2,
because business units continued to trade as separate entities
African male, acquiring company)
with one business unit refusing to be part of the integration.
All participants agreed that communication regarding Four participants emphasised the importance of setting up a
people issues was neglected by management. Eight strategic direction for the newly merged entity:
participants agreed that lack of communication or inadequate Well … as you know … I’m on my way out. I’m tired of the
communication regarding issues that directly affected people politics at play. There’s no direction, no clear strategy. (Participant
caused apprehension amongst employees and this made 3, mixed race female, acquired company)
further communication efforts difficult. People lost interest in I think there were too many changes and even at this point, I still
the merger or acquisition and there was a general decline in don’t know where we’re going. I don’t have a clear understanding
productivity and staff morale: of what the strategy is. Because one day we are retrenching
people in finance, the next minute we are not; the next minute we
Often there wasn’t transparency, so one didn’t know … we
are retrenching procurement staff, the next we are not. The next
would hear things in the passage. I think that the biggest
minute business development is here, the next it’s in Ireland. So
problems we had … the lack of transparency, lack of clear
everything’s all over the show. Nothing’s clear at the moment, so
communication and, I think, also often dissent in the management
I guess that makes me a little bit nervous. (Participant 7, white
circle. Top management couldn’t agree and they fought amongst
female, acquired company)
themselves. (Participant 9, white female, acquired company)

Almost all participants had changed positions once or twice

Eleven participants felt that they were not given an
within the organisation and felt that no senior cohesive team
opportunity to provide feedback to leadership regarding
had been developed after the M&As:
issues of concern:
The critical element for success of an M&A is not the potential
A staff survey was made available, which was administered
amount of synergy to be realised by combining companies, but
twice but we actually never got feedback. We never got to know
rather the existence of people who can play a critical role in
what the main issues that emanated from the staff survey were
ensuring a successful integration process. (Participant 12, Indian
and how they were going to be addressed. So, for me, it didn’t
male, acquired company)
work at all. Communication was ineffective because management
failed to actually monitor or get the issues resolved. (Participant Literally, I’ve had seven job descriptions over a period of two
5, white male, acquiring company) years. Within the first year of my employment, I had four
different bosses. It was quite disruptive. (Participant 7, white
I felt management communicated as one of those ‘by the way’
female, acquired company)
things and ticked off the box that it’s been done. (Participant 1,
African female, acquiring company)
Three participants indicated that more in-depth technical
due diligence should have been conducted because all the
Planning business units used different systems and processes. The
All participants strongly agreed that planning is critical delays associated with trying to implement a uniform system
during periods of change, such as those introduced by M&As, and implement new policies and processes caused further
but stated that planning for the M&As was insufficient. Two consternation amongst employees and clients. The biggest
broad issues emerged in relation to the theme of planning: problem facing the business units involved incompatibility
the absence of a sound due diligence exercise and the absence between the various systems and this resulted in the
of setting vision, mission and strategic objectives: introduction of a new reporting system:
A proper due diligence should have been conducted by outside Some of the business units did not have formal systems and
consultants to eliminate any biased thinking or overconfidence when the new reporting process system was introduced, chaos

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erupted. There were different versions, different interpretations, All participants felt that promises of support, participation in
everyone having different minds about how the system had a long-term incentive scheme, salary adjustments, higher
to be implemented. It was a mess. (Participant 6, African male, prestigious positions and opportunities for training and
acquiring company)
development were not kept. This affected the commitment
of employees and their general outlook regarding the
Leadership organisation:
All participants felt that leaders have a responsibility to I mean forget about position and income and bonus and other
orchestrate the success of organisational change efforts: things. Those were there or here. Decisions were reversed.
(Participant 2, African male, acquiring company)
Post-integration - I feel that there hasn’t been strong leadership.
I don’t think it is my perspective alone, but the general
perspective of employees … they don’t feel that the organisation The role of the human resources department
lived up to its words and there was no action … so there’s a very
definite change in culture. (Participant 5, white male, acquiring Ten participants noted that the role played by the HR
company) department during the M&A integration processes could
And I think it’s not just an HR department that must do it or
have been more strategic in assisting management to
should do it… but it must be driven by leadership with the develop a people management strategy. In fact, it was
support of HR. (Participant 9, white female, acquired company) noted that HR was not included in the due diligence
process:
Employee engagement Issues like remuneration … nothing was done about
remuneration. The different remuneration structures were an
The findings relating to employee engagement involved two issue as people started comparing themselves to their peers
dimensions, namely affective or emotional engagement and because the salaries and benefits were different. The general
behavioural engagement. Nine participants mentioned that feeling was that we’re not being taken care of. (Participant 8,
they were not engaged in their work and that, although they white male, acquired company)
attended and participated at work, they were merely serving To be honest … HR tried to implement standard policies and
time, putting no passion or energy into their work. practices but there was so much resistance from certain senior
managers who did not want changes. There were some battles
Six participants indicated that the M&A changes were won but I think the process would have been much better if HR
had support from management. And when I say support, I mean
threatening for employees and produced anxiety and stress.
support, not half hearted support. (Participant 1, African female,
Five participants highlighted the common stressors as being:
acquiring company)
level of uncertainty, fears concerning job loss, job changes
and changes in compensation and status. Participants
believed that these stressors led to a high turnover rate, Organisational culture
decreased productivity, low staff morale, low job satisfaction All participants agreed that the organisation had not
and a lack of identification with the newly constituted established the type of culture they desired following
organisation: the M&As. They also indicated that no proper cultural
After the mergers and acquisitions, the anxiety grew especially assessment had been conducted prior to these changes
as the processes unfolded and the organisation started being implemented:
getting big. The realities of the mergers were realised when
My perception is that we haven’t really developed a proper
the organisation started retrenching staff … People became
culture. And the danger now with the latest acquisition is that
disengaged, morale was affected. However … they always
we’re back to square one. We’re now being forced to be part of a
pulled themselves back. But just as they were about to stabilise,
bigger group. The whole feel needs to change. So whatever we
another acquisition happened, then the whole process of
have built with the company until now will again be sucked up
disengagement, low morale, psychological distance would
into somebody else’s culture which is difficult because now you
happen again to a point where it became cyclical. At the present
have an overseas multinational mother company that you have
moment, based on the conversations I’ve had with some of my
to look at. It’s a rough road. I don’t know why I’m still here!
colleagues … people’s security is threatened, people fear that
(Participant 8, white male, acquired company)
they’ll become obsolete as they fear that their skills and expertise
will lose value in the new organisation. Generally … people are
not in a good space. You can just see; they do what is required. All participants felt that culture should be an important
That sense of going an extra mile is gone … (Participant 3, mixed consideration during periods of growth created by M&As. In
race female, acquired company) addition, they felt that if the cultures of the acquiring and
acquired companies were vastly different, it would prove
Participants reported an absence of support structures to difficult to integrate the organisation:
assist employees with stress coping strategies: The cultures differ immensely. I mean we are trying to combine
I was told to call our employee assistance programme … that 13 different cultures. It was bound to be difficult to establish
we have it as an option should we need counselling etc. But I synergy, more especially if the leaders themselves don’t know
don’t know … empathy would have been … well … better what kind of culture they would like to see define the company
received. (Participant 5, white male, acquiring company) brand. (Participant 11, white male, acquired company)

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Change management processes information was excluded in the reporting of the findings
(Leedy & Ormrod, 2005).
Participants did not understand the different change
processes, and were particularly confused about whether the
change process was a merger or an acquisition; they used the Discussion
terms interchangeably: Outline of the findings
Well it was a strange thing because it was a reverse acquisition, The objective of the study was to explore the perceptions
remember? X actually bought Y … but then Y, being the bigger
of senior managers about the impact on the psychological
company, took over the acquisition, so we were part of the
contract during periods of change. The sub-objectives
acquiring company in a way … it was a very strange deal.
were to determine what organisational factors contribute
(Participant 6, African male, acquiring company)
to changes in the psychological contract during periods
of change, and the implications of the breach of the
Ten participants felt that the M&As were discussed between
psychological contract for the company and its employees.
top management of the acquiring and acquired companies
and that other stakeholders were not involved: Four propositions were posited and form the framework
within which the seven main clusters of findings that
But it was mostly X and Y and the Board and whoever did all of
address these objectives are discussed.
that. They ran with everything from start to finish. (Participant 6,
African male, acquiring company)
Proposition 1: Psychological contract breach can occur
The stakeholders were always only the senior management of during periods of organisational change
the acquiring company, and the acquired company. (Participant This proposition is supported by the themes that were
3, mixed race female, acquired company)
identified by senior managers – organisational culture,
employee engagement and communication.
All participants agreed that managing change is important
when promoting integration of different organisational
The findings indicate that organisational change contributed to
cultures:
the breakdown of the exchange relationship between the
Change management is important. It’s critical. I think if you employer and employees, the heart of the psychological
don’t have buy in from your staff and they don’t feel part of the contract (Aggarwal-Gupta et al., 2012). From comments relating
process, you’re lost. You’re already dead; you’re doomed to fail.
to the seven themes that emerged, employees appeared to
Aren’t your people your resource? (Participant 7, white female,
have withdrawn from the organisation. During periods of
acquired company)
change, employees may find it difficult to identify with the
Change management is critical. For me, employees are what
newly constituted organisation which can lead to lower job
make the organisation. If they are disengaged, unhappy, fearful,
satisfaction and turnover intentions (Payne et al., 2015).
constantly questioning their security, they tend to lose focus of
what the organisation is trying to achieve. Therefore, engage
with them, talk to them, invite them to give feedback and Communication, a critical component of any change process
suggestions. (Participant 5, white male, acquiring company) (Khalid & Rehman, 2011), was lacking, as indicated by the
numerous suggestions for increased levels of communication.
All participants believed that a detailed change management In the absence of such communication, participants expressed
plan should have addressed communication to create feelings of apprehension, and noted the loss of productivity,
awareness about the changes and how they affect employees the high employee turnover and poor morale in the company,
to avoid information being acquired through the corporate factors which were also found by Conway and Coyle-Shapiro
grapevine: (2012) to be consequences of changes in the psychological
As management, have a plan and decide on the culture that contract. Similarly, Bauer and Matzler (2014) report that
defines the company. The culture should be something that will during periods of change, lack of communication, involvement
drive the business and its processes. Implementation should be and support have a negative impact on the psychological
immediate with milestones of what needs to be achieved and contract. The need for clarity about plans, structure and
when. Also, get constant feedback from employees and allow personnel issues, together with honesty and openness, are
employees to give inputs. Address their concerns. (Participant 5,
key ingredients of any effective communication system
white male, acquiring company)
(Brakman et al., 2008).

Ethical considerations Further, the negative impact of change on the psychological

In seeking informed consent for the study, the selection contract can be extrapolated from the expressions of potential
process was explained to the participants and the potential loss of organisational citizenship behaviours such as loyalty
benefits of participation were described. This information and trust in the organisation, perceptions of organisational
was included in the written consent agreement which was unjust practices such as unfairness of the downsizing or
signed by all participants. retrenchment processes and confusion over roles and
expectations. In line with the breach in psychological contract,
To maintain confidentiality, participants’ names were not it appears that participants felt that there were few prospects
recorded (Domegan & Fleming, 2007), and all identifying for growth because of the broken promises they experienced.

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 Page 8 of 10 Original Research

These findings echo the argument of Chaundry et al. (2011) Participants perceived that culture was ignored during the
who suggest that organisational change results in a revision M&As and noted that the resultant organisational culture
in the relational psychological contract. was undesirable with a lack of integration of the different
cultures of the acquired companies. According to Simpson
Proposition 2: Performing a due diligence exercise is (2000), the continuous identification and capturing of
important prior to the merger or acquisition in order to value happens during the integration period, and success
promote the psychological contract between employer
and employee in the area requires the involvement of senior management.
An effective top management team has the ability to
The findings support this proposition. The themes identified
defuse postacquisition conflict, as well as better coordinate
by senior managers in this regard include those of the
business unit integration during periods of change
involvement of the HR department and the change
(Bouckenooghe, 2012).
management processes.

Participants perceived that the leadership of the company

M&As are becoming increasingly complex and it is thus
had not established the kind of culture that would drive the
important that an appropriate due diligence exercise is
business and that there were cultural mismatches that made
performed to mitigate the difficulty and risk associated with
it difficult to establish synergies. This demonstrated poor
these deals (Ceausescu, 2008). Despite due diligence being an
integration planning because cultural alignment should
important aspect of M&As (Gomes et al., 2012), very little
begin during the M&A processes (Rottig et al., 2014) and be
implementation planning was conducted at the company,
instilled throughout the change process (Bauer & Matzler,
and HR appeared to have been excluded from the process.
2014; Viegas-Pires, 2013). In addition, participants noted that,
Participants perceived that the due diligence process,
as HR was not involved in the integration planning, culture
including the people aspects of due diligence, had been
integration was overlooked. The most important contribution
overlooked. Linked to due diligence, it appears that leaders
by HR during M&As is to determine if the cultures of the
of the company did not strategise for employee engagement
merging companies are compatible (Zhang et al., 2015).
and that the change management process was unclear and
excluded the involvement of staff. For M&As to be successful,
and for the psychological contract to be preserved during Practical implications
such change processes, HR practitioners need to play an Seven themes emerged which encapsulated the perceptions
integral role in the process (Zhang et al., 2015). of senior managers about the impact of change on the
psychological contract during periods of M&As – lack of
Proposition 3: During periods of strategic change such as
communication, the absence of planning, lack of employee
mergers and acquisitions, key talent can be lost because
of breaches of the psychological contract engagement, less than optimal HR involvement, lack of
preparation of the organisational culture and poor change
The findings support this proposition. The themes that
management processes. These factors need to be addressed
emerged from senior managers to support this proposition
to strengthen the psychological contract of employees
included employee engagement, communication and change
during periods of change. As a result of these factors not
management processes.
being addressed, the psychological contract between
employees and the company was negatively impacted, with
Several participants alluded to the unhappiness of staff in
dissatisfaction being manifested along with signs of intention
the organisation with references to departure intentions.
to leave the company.
The frequency of the changes also led to increased levels of
job insecurity, and an absence of strategic planning and
The study provides practical pointers for the company to
inadequate communication led participants to feel uneasy
consider in relation to the importance of the psychological
about their futures and career paths. Participants noted
contract during M&As. Conway and Briner (2009) note that
that the HR department did not play a critical role in the
useful guidance for managers is often overlooked in studies
integration process which resulted in people-related
that focus on psychological contract breach. The present
activities being neglected. They felt that the HR staff should
study provides awareness of the need to manage the
have formulated a transitional plan during the due
psychological contract as an integral component of the
diligence process so that all people-related issues could be
change process during M&As.
addressed (Zhang et al., 2015) such as the retention of staff
(Steigenberger, 2016).
The psychological contract is a crucial element in
Proposition 4: Existing organisational cultures of the understanding employee work behaviours and a variety of
merging organisations can result in a clash of cultures that work outcomes (Coyle-Shapiro & Kessler, 2002). The success
impacts the psychological contract between employee or failure of integration depends on how organisations
and employer manage the psychological contract during periods of change.
The findings support this proposition. The themes emerged Understanding employee expectations relating to the
from senior managers related to organisational culture, employer–employee contract will enhance the understanding
leadership, planning and the involvement of the HR of the factors that employees regard as crucial and shape the
department. psychological contract (Aggarwai & Bhargava, 2009). Leaders

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 Page 9 of 10 Original Research

should understand that change is dynamic, and thus, also acceptable’ responses. However, from the tone of the
affects the psychological contract. Therefore, initiatives qualitative narrative, it appears that participants felt free
supporting change management should not focus exclusively to express their views. Again, inherent in the analysis of
on tangible issues, but should also address people issues. qualitative data is the possibility of bias in the interpretation
of data.
It is recommended that the leaders of the company develop a
clear integration plan should any further restructuring occur. Future research could focus how leaders can protect and
In this regard, managers need to be in continuous dialogue strengthen the psychological contract during periods of
with employees in order to inform them about the mergers or acquisitions. Based on the key issues that emerged
organisational goals and plans. This enables managers to in this study, a model process could be devised with key
obtain feedback from employees about their personal needs action steps at all points in the change process. It is suggested
and preferences. Better communication between parties that this model is then validated within the company.
encourages the development of clearer expectations by all
about the psychological contract.
Conclusion
HR practitioners should play a role at every stage of the The objective of the study was to explore the perceptions of
merger or acquisition process. It is important for the company senior managers about the impact of change on the
to equip its HR department with better knowledge and psychological contract. From the factors identified, it is
skills to cope with the new realities. This implies that HR indicated that leaders of organisations need to pay particular
practitioners should have business acumen relating to issues attention, during the change process involving M&As, to
such as industry trends, governmental policies, finance, legal communication, planning, employee engagement, the
systems, social and development changes that have a direct involvement of HR in the process, the preparation of the
bearing on the company’s objectives, performance and its organisational culture, change management processes and
people. leadership.

After the integration process, company leaders should ensure The organisational environment is continuously changing and
that employees have clear guidance on their roles within the organisational leaders need to be aware of the employment
new organisation, as well as growth plans that assist them in relationships in various situational circumstances. Safeguarding
adjusting to ensuing changes. Cognisance should be taken of the psychological contract is paramount if good staff are to
the differences that exist between individuals and where be retained and a positive organisational culture established
possible, their remuneration structures, career aspirations within which staff can flourish during periods of change and
and development plans should be structured equitably. thereafter.

A culture audit, during the pre-integration stage, should be

conducted to determine what kinds of norms are important
Acknowledgements
to the functioning of an organisation. Cultural audits are Competing interests
not watertight, but such audits may assist leaders in The authors declare that they have no financial or personal
understanding pressure points at which culture might be relationships that may have inappropriately influenced them
influenced. in writing this article.

A process of continuous communication should be adopted

to ensure that employees understand the rationale for the Authors’ contributions
change and its overall contribution to the business objectives. The study was based on the research dissertation of the first
The communication needs to begin during the premerger author, K.D.M., completed at the University of Johannesburg
stages to set the scene to promote the commitment of staff to for the MPhil degree in Human Resources Management. A.T.
the organisation (Herold et al., 2008). was the supervisor of the study. A.T. converted the
dissertation into the present manuscript.
Limitations and recommendations
The tacit nature of the psychological contract is subjective.
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