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Talent & Organization Challenges in M&A: An Indian Perspective
Post deal organization, HR transformation, cultural alignment and change management are the four aspects that can help accelerate the M&A process, say Deepak Malkani, Lead; Jayesh Pandey, Senior Executive and Rhiju Bhowmick, Manager – Talent and Organization Performance, Accenture
MM&A activity in India continues to remain strong. The total deal value increased from USD 24bn in Q-1 2010 to USD 29bn in Q-1 2011. With deals on the rise, corresponding attention must be given to the enabling factors that often define success or failure in a M&A. This is especially true for in-bound acquisitions where foreign companies acquire Indian businesses. This segment has shown a 13 increase in Q1 as compared to 2010.
A merger, acquisition or divestment brings with it unique people challenges that are outside the domain of Business-As-Usual functioning. The size and diversity of India (22 official languages, 28 states, and 7 union territories) add on to this complexity. Differences in business and operating models, HR practices and organization culture throw up additional challenges in effectively leveraging upon the benefits of inorganic growth.
The M&A Talent and Organization agenda, often seen as having less quantifiable “balance sheet” impacts in the nearer term, can nevertheless cause significant delay in value realization. Early focus on the following key areas can help avoid such value destroying “valleys” and accelerate the synergy realization:
1. Post Deal Organization
2. Human Resource Transformation
3. Cultural Alignment
4. Change Management
Post deal organization
Any M&A will require a relook at the organization design of the combined entity. The incoming unit(s) may bring with it new geographic presence, channels, business processes, brands and manufacturing assets. The headcount may multiply and demographic profile of the employee base may undergo dramatic change. In addition, the large and complex nature of this change is likely to produce lack of direction and ambiguity of role expectations in employees across levels. Unless the transition and to-be organization design is tackled upfront, information asymmetry, fractured reporting lines and lack of coordination can start eroding the deal value very early into the integration.
The geographic dispersion of India and uniqueness of local business models necessitate a rigorous and hands-on approach to organization design. At the very least, a transition design needs to be in place within the first 100 days of the deal, while the longer term organization design is on its way. This takes ambiguity out of the governance equation and allows senior leadership to efficiently execute the decisions critical for value realization.
Done correctly, post merger organization design stabilizes the combined organization, drives transparency in governance and decision making and provides employees the clarity of direction, roles and reporting early on into integration. The net outcome is quick stabilization into Business-As-Usual and delivery of the promised transaction value to shareholders. Operational benefits translate into effective people integration, clarity of career levels and reporting structures and active driving of employee engagement.
Effective post merger organization design approaches combine top-down and bottom-up approaches. The starting step is defining the organization foundation: capturing the strategic intent and specific deal context, reviewing as-it-is structures and developing strategic KPIs for the combined entity. These set the ground for top level design with principles aligned to strategy. Management processes are reconfigured and the bottom-up design rolls up to meet top-down. The design cascades to business units, departments, teams, jobs and sub-processes. FTE projections and capacity are adjusted and the whole process involves important buy-in from key stakeholders.
Human resource transformation
With changes in business model and employee profiles, the HR function of the post-merger entity faces its own challenges. Any planning will need to build in the fact that post merger, the HR function itself will often undergo rapid reorganization, while at the same time, supporting the massive organization-wide changes.
In a headcount-additive M&A, the HR function is suddenly faced with the task of reorganizing itself so that it is aligned to the changes in the line function. In case of a divestiture, the retained HR function may have lost some or all key staff in critical HR areas. At the same time, the organization it serves will have a reduced manpower and business diversity. Both scenarios – whether divestiture or acquisition – trigger changes in HR service delivery, changes in HR IT systems and a need to redraw the HR capability baselines in light of the additional responsibility of running a larger (or smaller) set up. Incoming HR talent needs to be leveraged appropriately and redundancies addressed.
In the Indian context, complexities arise from differences in HR maturity levels, differing core capabilities and evolving nature of HR service delivery models. Degrees of differences also exist depending on whether the HR organization caters to a domestic or international workforce. Lack of robust HR MIS data and trends can slow down the process. Lastly, there is the big issue of HR bandwidth. Accenture research shows that most Indian companies struggle to address a variety of people- and organization-related challenges inherent in M&A environments. In the survey, only one-third of CEOs and CHROs indicated they have performed “well” or “very well” in aligning workforces quickly during an M&A.
The human resource function has to support the post-merger task force in addition to its day job of supporting Business-As-Usual. This often places considerable strain on HR talent bandwidth and executive time. Early planning and contingency resourcing can help alleviate some of these issues.
Often the two combining organizations have distinctly different cultures. During integration, such differences can present a potentially significant barrier. The drastic differences in the regional cultures of India add to this complexity. M&A deals that involve at least one “regional” player, where most of the operations and/or employees come from the same geographic location of India, are one representative of such cultural differences. Global deals are another. Such deals often come with different cultural values embedded into the DNA of the combining entities.
Poorly integrated or un-addressed cultural issues may manifest themselves as decision making paralysis, organizational conflict, erosion of employee morale and worst, flight of talent. All of these can have significant business impact and can delay synergy realization.
An effective cultural integration strategy must play an active role from the pre-deal stage, using the HR due diligence exercise to identify key cultural values of the target. Understanding the current cultural values will allow addressing of key cultural similarities and differences. Post merger, the business rationale of the deal will drive the culture alignment options, supported by the culture due diligence findings. The current cultural values, in combination with desired culture view from the top, are essential to identify culture gaps and build the alignment roadmap.
For example, in a recent multi-billion cross-border merger involving a large Indian buyer, cultural assessment and alignment played a significant role in designing an operating model for the combined global enterprise, unlocking millions of dollars in deal synergies.
Often post-deal change management is handled in a fractured manner. Individual components like strategic employee communication, run as stand-alone work-streams. This generates two major risks. Firstly, fragmented change management escalates coordination complexities, making delivery of forceful change benefits within periods of turbulence difficult. Secondly, soon after deal announcement, executive attention tends to shift elsewhere. Without proper change planning and project management early on, it becomes difficult to secure executive time and bandwidth towards driving the change.
Culturally, Indians tend to have an inherent quality to adapt and improvise. This helps during major change events like M&As. But at the same time, a booming demand for talent means that there is only so much of ambiguity and forced change that employees will live with. It is here that the benefits of strategic change management demonstrate themselves. Articulating a clear roadmap for the to-be organization, judicious selection of change levers like leadership, communication, employee networks, incentives, etc. at different points of the change curve, actively managing the supply and demand of change and finally running change management as an integrated business process can significantly mitigate the disruptive change effects of M&As.
For further information please visit: accenture.com/MA-India
i. India Brand Equity Foundation
ii. The High-Performance Workforce Study India, Accenture
CASE IN POINT 1
A large Indian conglomerate divested some of its businesses to a US MNC. The retained HR organization was faced with several challenges: Reduction in field force and increase of overseas workforce as a percentage of the total headcount; change in nature of business - manufacturing-driven to knowledge-driven and loss of HR capability due to resource transfer. The organization responded by undertaking a major transformation that reorganized the HR service delivery model, base lined HR capability and restructured the HR organization. This ensured business alignment and more effective support towards enabling the corporate strategy.
CASE IN POINT 2
In a large and complex merger, two competing firms came together in the Indian market. They had a history of rivalry, overlapping brand portfolio, complex operations and the combined entity commanded more than 50% of market share. Aggressively tackling culture early on, the combined organization identified their respective strengths to design the new cultural foundation of management behavior. Success was measured by the fact that the integration was seamless, there was more than 50% increase in EBITDA and 60% market share.
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