In the process of assessing the gap, we decide if we should bridge the gap by “building” capabilities or by “buying” them
Choosing the company and aligning the right integration plan is the key for a successful implementation
MphasiS has grown significantly over the years through the inorganic route. Since MphasiS became a HP subsidiary, there have been two notable acquisitions; AIG Systems Solutions (in 2009) and Fortify Infrastructure Services (in 2010). Dinesh Venugopal, Chief Corporate Development Officer, MphasiS, discusses with People Matters on what drives the M&A strategy at MphasiS and how it adds value to the overall growth of an organization
What drives the M&A strategy in MphasiS?
Earlier this financial year, MphasiS underwent a large scale transformation process. We have chosen to focus on strengthening our vertical approach in order to service our global clientele. This focus will help us differentiate in the market. Our objective is to provide the customers an end-to-end solution; hence, we look at what the customer needs and we evaluate our internal capability. In the process of assessing the gap, we decide if we should bridge the gap by “building” capabilities or by “buying” them. The building strategy is naturally slower but also less expensive; while the buying strategy can give you access to faster delivery and hence capture the opportunity.
Our M&A strategy is designed to accelerate our strategy implementation and support our growth plans.
When are M&As really adding value to the company strategy?
Firstly, one needs to pick the right company; even when we started the process of acquiring Fortify, we looked at more than 75 companies to start with, then we narrowed down to 10 and again to 5 and finally we were tracking just 2 before we did the acquisition.
Finding the right choice is a bit like an arranged marriage. Once you start thinking about getting married, you imagine the best possible option, with the best possible qualities and then you realize that this person does not exist and you go down the street and find out that even your neighbors’ daughter is now engaged. Similarly, with business leaders, they would tell the M&A teams that we want the best possible acquisition and eventually what happens, is a mix between what is available and what is possible.
Secondly, once the company has been chosen, the integration plan is extremely important. Choosing the company and aligning the right integration plan is the key for a successful implementation. The integration plan will have the details of the cultural fit of both organizations, the type of integration it would be, either tightly coupled or loosely coupled along with a two year integration plan and metrics. Finally, the plan should ensure that the final entity gets the best of both worlds in terms of best operations, practices and technology.
Can you elaborate on the difference between a “tightly coupled” integration and a “loosely coupled” integration?
In a loosely coupled integration, one will keep the merged entity as a separate entity all together, with their own P&L and own structure, without integrating the teams, customers or operations. This is as opposed to a tightly coupled integration, where there is a seamless integration of the teams.
For example, when we acquired AIG Systems Solutions in 2009, this deal required a full integration in order to extract the benefits of the transaction. The reason we acquired AIG was to have access to the skill sets and hence the teams had to become part of the insurance practice. The complete integration was the source of synergy from the deal. This was different when we acquired Fortify Infrastructure Services in 2010; we decided that we would leave the organization to function independently as we wanted to preserve the entrepreneurial culture.
Every transaction will require a different integration process depending on what are the synergies that the deal will bring to the table and what is the best way to materialize them.
What, as per your experience, are the three main tenets for a successful integration?
The first must of any integration is ‘retention of talent’. Being in the services business, people are our real assets. Top talent should remain with the organization for the value of the deal to be realizable. The second is the customer. All integration plans should ensure that the customer receives a seamless service delivery during the integration. The integration plan should identify synergies at the forefront and very carefully track that these synergies are being realized. Honestly, I feel that if you focus on talent and customer, the rest will fall in place. The third is the operations, which means that the integration plan should look at adopting the best of both the worlds; even if the company is small, the larger organization should look at adopting the best practices and leverage on that value.
How are these tenets different in a domestic integration versus cross-border integration?
The integration is not different. Of course, in cross-border integration, there are issues related to culture and perceptions that are very important. For example, the meaning of career growth or career opportunity can be significantly different in different parts of the world. Therefore, one has to be sensitive in order to ensure that talent is retained.
From your experience, what can go wrong in an integration and why?
The first thing that can come in the way of a successful integration is making assumptions about what each party wants or needs. If the acquirer believes that they know what the acquired company wants or needs without finding out a collaborative approach, this can become one of the biggest problems in a successful integration. From my experience, what works is a collaborative approach, where both parties together, openly discuss what the particular expectations and requirements are. A version of this plan should be ready and agreed to even prior to the signing of the deal.
The second thing is to have a clearly framed integration plan with milestones. This plan should be aligned to the synergy that is expected from the deal and should have milestones that track the progress of integration as planned. This integration plan also should be shared with all relevant players of the plan.
The third thing is to make big and painful decisions upfront. If a company knows, that post integration, some roles will not exist, it is better to communicate the same upfront and not keep the suspense that can generate anxiety and attrition in the teams that might be acquired. When faced with tough or sticky decisions, always go back to the strategic rationale for the acquisition and use that as the compass to help you make the right calls.
Having a plan, tracking results, communicating and collaborating are actually the base of a successful integration. Interestingly, even though they are simple processes, we continue to forget them in every deal. If you see, seldom is the case that the same people are involved in the M&A deal. Therefore, from deal to deal, any one of the persons involved in an integration plan might have been part of a deal 3 or 4 years earlier, so we tend to forget these basic principles as we do not apply them regularly.
CASE STUDY: Acquisition of a Global Insurance Major Business continuity
One of the core focus areas much before, during, as well as after the acquisition was ensuring seamless delivery; this was ensured to the extent that the client did not feel at any juncture that the management had changed, resulting in a change in the organization’s DNA. To ensure that clients could be assured of continued best-in-class delivery, the management team from MphasiS met with the clients of the global insurance major much before the merger, to help them understand and be comfortable with MphasiS delivery capabilities.
One of the biggest people-challenges was aligning the culture and mindset of the two organizations. Though both were IT service providers, one was an offshore captive of a conservative insurance giant, and the other was a fast-growing company that was young at heart; these differences contributed to significant changes in organizational culture, and this was one of the chief aspects addressed during the integration process.
For example, from something as simple as dress code or more close to heart, leave policy were different for the two organizations. While the differentiating factors themselves were relatively low-impact, what mattered was how the employee felt about the change, and how it was implemented.
The global insurance major as a seller was particular that some of their commitments to employees be kept up, at least for the duration of that financial year, if not longer. From a human resources operations perspective, we had to conduct in-depth studies that compared and contrasted policies and employee benefits and ensured that there was no great mismatch between existing employees and those from the acquired organization – this was a very crucial step. For example, some offerings like dependent coverage of medical insurance was continued for a year for the global insurance major’s employees with the existing service provider, before merging the policy with MphasiS’ service provider.
Needless to say, anyone who has worked on mergers and acquisitions would tell you that communication is the key to managing change. This single factor can make or break the amalgamation so effectively, that nothing else can mend the damage done by bad communication strategy.
The management teams of the global insurance major as well as MphasiS were aware of this, and a dedicated team worked on a comprehensive communication strategy. Communication plans and collateral were designed and finalized to the minutest detail possible, and synchronized between both the organizations. Irrespective of how well managed an acquisition is, there are always roadblocks that come up during and after the process. Top talent retention is one of the key issues, since market forces use the inherent instability of any change, to attract and poach talent. Even though communication plans and acquisition strategies can be extremely well-planned, change always brings apprehensions and there is a lingering feeling of insecurity amongst employees. So, the proof of the pudding of having managed the integration well is a dipstick survey at the end of 3-6 months, to understand employee satisfaction levels, which was undertaken to assess what changes can be made to make such a large-scale acquisition more effective.
There are a multitude of books written on M&A, hordes of research papers, but what finally matters is how each merger or acquisition is managed on the floor and if the relevance of it is understood from the perspective of every last stakeholder. What worked well in this M&A, was that the management teams from both organizations have met on a common platform of wanting to make the experience a pleasant one for employees, clients and other stakeholders, planning every single step of the process, communicating every last and minute detail, talking the talk and more importantly, walking the walk.
Case developed by Sunitha Vadlamudi Lal, Business HR Head - BPO (Domestic & International), MphasiS