Article: Challenges of integrating human capital during M&As: Anupam Prakash

C-Suite

Challenges of integrating human capital during M&As: Anupam Prakash

As companies are looking at growth through acquisitions, challenges of people integration and change management must be given top priority, says Anupam Prakash, Practice Leader, Hewitt Associates
 

Organisations which have a history of leveraging acquisitions to help drive their growth strategy know that cultural compatibility is very important to a successful integration

 

An organisation's human capital can be either an enabler or a barrier for realizing anticipated deal synergies

 

As organizations seek to expand into new and high growth markets and insulate themselves from risk, increasingly more attention is being placed on accelerating growth through acquisitions. Although, the upside of such inorganic growth can be tremendous; many organizations underestimate what it takes to successfully implement and execute a smooth integration process which precludes impacting day-to-day business operations. The probability of such a successful integration can be enhanced through focusing on four critical components: retention of key talent, culture integration, communications, and change management. Both our experience as well as research time and again reinforces that quite often, the “softer side” of change is the most difficult to grapple with. An organization’s human capital can be either an enabler or a barrier for realizing anticipated deal synergies. Therefore, adequate attention to addressing the human side of corporate transactions is critical.

One of the first major hurdles faced by organizations in closing a deal and preparing for smooth operations ahead is the issue of retention. When deal synergies are initially envisioned and formed early in the deal lifecycle, it often takes for granted that the acquired organization will maintain current performance and productivity levels. However, in order for this to occur, continuity in key personnel is imperative. While many organizations initially focus solely on key leadership positions, it would be remiss to not expand the focus to include additional critical talent critical to day-to-day operations of the business. This could include key personnel serving in customer interface roles such as in account management and sales as well as in back office operational roles such as in finance or information technology. Organizations need to look at the retention issue holistically and increasingly design effective retention platforms which are linked to the overall employee experience which address more than monetary remuneration. Failure to address this issue adequately will have a major impact on realizing the deal goals and is one of the fastest ways to destroy the anticipated deal value.

Many experienced M&A hands will attest that one of the most complex challenges organizations typically face during an acquisition is how to approach the issue of organizational culture. Organizations which have a history of leveraging acquisitions to help drive their growth strategy know that cultural compatibility is very important to a successful integration. Realizing deal synergies during integration is driven by how fast the synergies can be achieved. One of the most common factors impacting integration timeframes is cultural integration. More often than not, organizations underestimate the level of effort and amount of time required to successfully integrate cultures. To fully set the context, it just happens to be the case that culture integration can be tricky even under the best of circumstances.

So you may ask why organizational culture is so important and what happens if cultural integration goes wrong? First and foremost, it is a primary element in defining the employee experience in an organization. Cultural fit is the reason why an employee chose to work with a particular organization, when he could easily make more money by working for its competitor. Linking this back to the issue of retention, employees tend to get up and leave if the culture is incompatible. Now taking the next logical step, if culture defines the employee experience then culture integration is also directly correlated with the customer’s experience. To take this line of thought to its conclusion, it is also thereby linked to the organization’s operational and financial performance.

Addressing culture in integration situation takes a solid, well thought out plan as firstly, one needs to assess the overall magnitude of difference between the organizations. Secondly, the integration team should assess the synergy drivers, integration goals, and overall business strategy. Each of these, along with the cultural delta influence the degree of integration required. Once this is assessed, one can then drill down into individual components of the organizational culture, which need to be addressed. From a change management perspective, this can be one of the most challenging and rewarding components in successful post merger integration.

The inherent change which takes place in the context of an acquisition is oftentimes very significant and often provokes fear of the change to individuals at a personal level. Organizations, like people, tend to resist change and fear of the unknown. One of the best ways to address and mitigate this fear is through comprehensive communications and change management. Initial communication is often focused around deal announcement and subsequent deal drivers. The value of strategic communication cannot be overemphasized in successful integrations. Properly executed communications will squash rumors, keep employees informed and engaged during the integration process, thereby combating retention issues, minimizing disruption to daily operations, and helping combat the “performance dip” commonly found during the M&A integration process.

Post integration, organizations often cite an increased focus on organizational change management as a key learning and targeted area for improvement prior to their next acquisition. In order for a smooth integration to occur, the integration team should develop a comprehensive and executable change management strategy. This strategy should assess organizational impacts resulting from structure, system, process and technology changes. Once these impacts have been identified, the change management strategy should outline practical approaches to minimize the impact through stakeholder management, communication, and training. This will ensure that proper resources are utilized and capability building takes place to achieve minimal disruption after deal closure.

Effective post merger integration can seem a daunting task and it often is, especially when aggressive integration and synergy capture goals and timeframes are put into play. Like mentioned before, four critical components in the recipe for integration success include dedicated focus on retention of critical employees, culture integration, communications, and change management. These components will not only lead to capturing the anticipated deal value but also position your organization and its people for future success.
 

Topics: C-Suite, Performance Management

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