Al Bawadi Islamic and Al Shurooq Banks Merger

Introduction

This report presents a change management plan for two banks, Al Bawadi Islamic Bank and Al Shurooq Bank that intend to merge to create the New Bank. It is imperative to note the fundamental differences between these two financial institutions in order to develop the most effective change management plan. Al Bawadi, for instance, is a 16-year old bank with 10,000 current employees, 55 local branches and 12 overseas branches.

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Conversely, Al Shurooq Bank is 12 years old with 2,000 current employees, seven local branches and no overseas branch. These banks also differ based on performance. Al Bawadi Islamic Bank has been extremely successful and profitable. It is certainly a traditional bank with Islamic values and does not depend heavily on Internet banking and related technology. Shurooq Bank, on the other hand, is less profitable and had many setbacks recently. It is a non-traditional bank, which has only seven branches because it is more of an Internet Bank.

Given these fundamental differences noted in years of operations, modes of operations, cultures, practices, success and other related factors, change management is critical for these two institutions because of possible conflicts.

The possible impacts of the change on ALL stakeholders and dealing with these impacts

Al Bawadi Islamic Bank and Al Shurooq Bank have numerous stakeholders who will be impacted by the merger in different ways. For clarity, stakeholders have been grouped into different categories (Spitzeck & Hansen 2010).

Internal Stakeholders

This group functions within the confine of the two banks. They include bank executives or management team, departmental heads, service lines, or groups, individual team members and employees. The CEOs, for instance, are extremely anxious because one of them must be dismissed, and researchers provide valuable insights on how much executives can influence change related to merger and acquisitions (M&A) (Appelbaum et al. 2007). Other employees could also face the same dismissal outcomes. That is, the merger plan as a part of change is most likely to result in job losses for internal stakeholders. Conversely, some employees may be retained, moved to new divisions, or demoted.

Interface Stakeholders

This group consists of the two banks’ boards of directors. They function both internally and externally to meet management issues and set strategic direction. Obviously, these stakeholders have deliberated on the merger and decided on the plan to merge. Change may not negatively affect these stakeholders.

External Stakeholders

These stakeholders have been grouped into three categories based on their relationships with the banks (Mainardes et al. 2012). Suppliers and vendors offer critical inputs for both banks. During the merger, some vendors and suppliers will definitely lose their contracts while others will be retained. The New Bank cannot have two different IT vendors and suppliers for a single legacy system, for instance.

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Competitors will be keenly watching emerging trends driven by merger and acquisitions in the banking industry. The New Bank will ultimately alter the financial landscape both domestically and overseas as it seeks to consolidate resources to enhance its competitive edge.

Finally, the special interest group that is mainly concerned with how the banking industry functions will also be affected. Customers are powerful stakeholder, without whom the banks cannot exist. The merger plan is meant to enhance appeal to customers and offers excellent services. However, if the New Bank fails in its mission, then it will experience a high rate of customer attrition.

The New Bank cannot ignore the media for positive publicity.

The governments, both locally and globally, are known to devise, enact, and enforce laws and regulations, which may either support the merger plan or directly hinder such efforts. A supportive legal environment will be excellent for the intended merger.

Other special interest groups include the business community, investors, industry professionals and researchers, and advocates whose opinions may support the merger plan or oppose the efforts.

According to Mayfield (2014), these are the expected pain of change. The most effective means to deal with these impacts on various stakeholders is to seek for the best way to recognise and minimise the negative impacts of change. It is recommended that leaders or all stakeholders should not engage in self-denial, resentment, and anger. Instead, an effective change strategy can help to counter such unwanted impacts (Mayfield 2014).

Who should lead the change? Type of leadership style required and the proposed team

The CEOs and managers of both banks are expected to lead the change. In this regard, communication will play a critical role. For instance, researchers have noted that effective communication during merger campaigns have positive outcomes (Daly et al. 2003). Managers understand internal factors such as management philosophy, culture, power, controls, and organisational structures that could impact change efforts. As such, internal communication that promotes honesty and openness and is used to manage both good and bad news, including redundancies during change is mandatory. It lessens staff anxieties, absenteeism, and low-levels of productivity.

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Change is most suited for transformational and transactional leadership styles. These styles of leadership have been known to enhance the engagement of managers in the change process (Holten & Brenner, 2015). Effective engagement of managers was related to employees’ appraisal of change. It was also established that the two leadership styles led to direct, long-term impacts on employees’ change appraisal (Holten & Brenner 2015). Overall, the transformational leadership style was found to be the most effective in change management processes (Appelbaum et al. 2015).

Executives and line-managers will form the change and implementation team. Past studies had shown that leaders and employees played critical roles through commitment during change plan implementation. Hence, senior executives and line-managers will be crusaders for change and the merger plan. A good plan supported with effective internal communication ensures that multiple teams cooperate while all stakeholders remain informed on the overall achievement of the merger plan (Chrusciel & Field 2006; Kitchen & Daly 2002). One cannot underestimate the role of communication in ensuring a successful change process (Matos et al. 2014).

The culture to accept the change

Change management efforts have often concentrated on preparing stakeholders affected by change initiatives to embrace the changes that emanate from various processes (Harrington & Voehl 2015). Hence, employees and executives must under cultures of their respective banks and determine how the merger will result in the creation of the New Bank with a new culture.

Traditional business cultures will be compared with modern organizational culture. Therefore, the executives must recognise that merging to create the New Bank would be far more complicated beyond a mere change in organisational structure or introducing some forms of different management strategies (Burnes 2003).

The CEOs and change drivers must ensure that organisational cultures are aligned with the missions and goals of the banks. Based on available evidence, employees are most likely to embrace change when it captures core elements of the mission and goals of organisations (Burnes 2003). While the CEOs and other managers may promote a certain set of values, which they consider as major elements of organisational culture, it is always imperative to understand what employees perceive as the underlying message in an organisation and determine the real culture based on how the two banks operate.

By embracing the culture to accept the change, employees will be prepared for a ‘merge and grow’ approach that could lead to overall success for both internal and external stakeholders within a short period (Lind & Stevens 2004).

A change model that they can follow

A change model must be a critical part of the merger plan. When most employers agree on the merger plan and change process with well-defined objectives, then they are most likely to support the merger. At the same time, the proposed team for change will have to define expected outcomes, influences, and benefits of the merger while being careful not to tout change process at the expense of overall impacts of the merger (Edmonds 2011).

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Given the complicated nature of change, a simple change model developed by Lewin has been proposed for the New Bank.

Lewin’s three-step change model can assist both banks in managing change processes successfully. These steps include unfreezing, moving, and refreezing (Hossan, 2015). Lewin observes that companies have to ‘unfreeze’ the current state and move into a neutral state to allow old habits to be unlearned and new behaviours to be embraced effectively. Organisations can then implement change plan by using driving forces and restricting resisting forces. Once the change has been realised, organisations can now ‘refreeze’ into a new state (Hossan, 2015).

This model would be most effective for the traditional bank that relies perhaps on top-down, command-and-control management method across its various business units and multiple branches. The New Bank will, however, understand that two different forms of management styles must be transformed into one by using a transformative leadership style to drive and sustain change (Abraham et al. 1997).

Each phase of the model

Based on Lewin’s model, the first phase is unfreezing. In this phase, the organisation should focus on changing existing behaviours or status quo, which is the equilibrium state for the banks (Kritsonis 2005). The model shows that banks will need unfreezing to overcome challenges associated with human factors, such as resistance and group conformity (Kritsonis 2005). The two organisations can realise unfreezing through these methods.

First, they will have to focus on enhancing the driving force for change to reduce concentration on the status quo (Kritsonis 2005). Second, the two banks will have to restrain forces that poorly impact the change process. Finally, they must find a balance between driving forces and restricting forces. For the two banks to merge and manage change successfully, they must unfreeze by motivating employees to prepare them for “imminent change, develop trust, appreciate the need to change, and actively engage in identifying issues while brainstorming solutions collectively as a group” (Kritsonis 2005, p. 5).

The second phase involves movement to change behaviours. The banks will have to determine the next level of equilibrium by using the following three strategies. First, they will appeal to employees that a merger is extremely important, and the current state is not beneficial for both banks. Second, they will encourage employees to assess the issue from a different perspective, collaborate to get new information that is more relevant to the merger issue. Finally, all views will be evaluated while support is sought from senior executives and board members who support the merger.

The last phase of Lewin’s change model involves refreezing. The New Bank will have to execute this phase once the merger has been implemented to ensure that change can be sustained or ‘maintained’ for a longer period. In most instances, it is highly possible that change will only last for a shorter period, and employees will revert to status quo if an organisation fails to implement this phase. This phase accounts for the real incorporation of the newly created values into the New Bank, eventually leading to the creation of new practices, procedures and cultures (Kritsonis 2005).

Refreezing phase is designed to stabilise and ensure that change is sustainable. The Bank must stabilise the new situation that will result from the merger by finding “the right balance between change proponents and opposing forces” (Kritsonis 2005, p. 5).

The New Bank will implement the third phase by reinforcing new structures, patterns and practices, and institutionalisation of these aspects by both formal and informal means, including well-defined banking policies and procedures. Research shows that most M&A efforts fail due to failure to manage post-M&A processes effectively (Weber & Tarba 2012).

According to Lewin’s change model, the organisation will have to identify forces that either oppose or advance the merger plan. It would ensure that driving forces have greater strength relative to opposing forces in order for change to be realised. It is believed that the merger plan will consider all these aspects of change implementation for a successful merger.

Maintaining the change: Sustainability issues

While a merger can be executed swiftly, change, on the other hand, is a long-term process. Several studies have demonstrated that senior executives’ commitment is critical for change sustainability if the change plan is executed (Alänge & Steiber 2009). It is imperative to recognise that committed senior management may not remain the same throughout the growth of the New Bank. In this case, change sustainability now focuses on organisational governance structure.

If the New Bank board of directors does not comprehend the relevance of the merger and change, senior executives may be replaced and new ones recruited who will take new directions from the board. Hence, the New Bank must ensure that its board is also committed to change. In this case, researchers propose that the board should be competent and experienced, hold regular dynamic meetings to review progress, offer critical resources required, and determine the best methods of replacing the CEOs (Alänge & Steiber 2009).

At the same time, the New Bank must understand that multiple factors influence change sustainability at various levels. The New Bank will carefully evaluate individual, financial, managerial, leadership, cultural, and organizational factors to ensure that they are developed to support and sustain change in the New Bank (Buchanan et al. 2005). The New Bank can, therefore, not underestimate the relative importance of these factors. They ultimately determine the quality of change and its sustainability on a long-term basis through a quality improvement culture (Huq 2005).

Conclusion

The report contains issues related to the merger plan of two banks from a changed perspective. It is imperative to recognise that the merger plan may be implemented to create the New Bank. However, the process of change must be clearly defined using a change model, Lewin’s change model, for instance, to guide the entire change process. It will assist the two organisations in identifying change driving forces and restricting forces.

Effective communication and leadership aspects remain critical aspects of change success.

Reference List

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