Opinion

Cultural factors crucial in making bank mergers work

P Saravanan / Abhishek K Totawar | Updated on October 30, 2019 Published on October 30, 2019

The expected synergies may not be generated if human capital is not dealt with properly. Good leaders know that cultural transformation is a long-term activity

To achieve the ambitious target of making India a $5 trillion economy and to boost economic growth, the government has decided to merge 10 public sector banks (PSBs) into four larger entities. This consolidation is expected to create fewer and stronger banks in the country.

However, there are many challenges related to human resources, integration of information technology network, books of accounts, etc., associated with this merger and amalgamation. Among all, human capital is the major one and if that is not dealt with properly, the expected synergies may not be generated. Let us discuss how such potential synergies could be created especially in the context of human capital.

Organisational culture is important: Leaders must not ignore the value of organisational culture in which people are embedded. Ask the people of these banks as to what it means to work there, and most employees would say that besides the monetary benefits that they earn, their organisation gives them an identity and a sense of belongingness.

We as humans have a natural way of comparing and looking at things as small or big, greater or lesser. The same is true when it comes to the scenario of a merger, where two entities meet; people would inadvertently compare and label one bank as small and other as larger. So, here the role of the leader is critical, where they must step-in and highlight the primary objective of the merger; which is to create a stronger entity by the consolidation of those entities which had complementary capabilities, thereby creating 'synergies'.

Communication plays a crucial role: Often the employees of the larger entity generally end up treating the employees of the other entity as tenants. Leaders must clarify this that they are not tenants. In doing so, communication is the key.

In the words of Sir Richard Branson, founder of the Virgin Group, “Communication is the most important skill a leader can possess.” Padmaja Chundru, Managing Director of Indian Bank, says: “Our area of focus is HR integration... Communication with our staffs in both the banks will be our priority at this moment...”

Empirical evidence: Research across the world in this domain reflects that when it comes to mergers, effective leaders do the following: First, they listen to what employees feel and act on what they hear.

Second, they communicate regularly and often, with utmost honesty and transparency.

Third, they build coalitions; leaders know that every organisation has some form of ‘tea-time conversations’ and they use this as avenues to communicate, kill rumours, and involve more employees to be a part of the change activity.

Fourth, they ‘adapt; they simply don’t import best-practices from other organisations, instead they know the importance of adapting those practices to fit the current context.

And, fifth, they need to focus on developing a shared culture; leaders know that in marriage of equals it would be a mammoth task to combine the two cultures, hence they emphasise on ‘co-existence’ of the two cultures.

To conclude, instead of pushing the two cultures to combine, good leaders know that of all the aspects, cultural transformation will be a long-term activity. In attempting to do so, they engage with their employees, encourage them to step out of their comfort zones and explain to them the importance of adopting new norms and practices.

The writers are faculty members, IIM Tiruchirappalli

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Published on October 30, 2019
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