We follow two different models depending on what is the strategic intent of the transaction
The biggest risk is retaining people post deal. This is especially true in India due to the talent demand–supply mismatch
Schneider Electric recently announced its 6th acquisition in the last two years by acquiring 74% stakes of Luminous Power Technologies. Olivier Blum, Country President and MD, tells People Matters why it is essential for the strategy to drive the M&A deal to help the the organization achieve the goals it has set for itself and not the other way round
What is your strategy for Schneider Electric India and what is the role that M&A is playing to achieve this?
From 2008, our strategy in India has been to accelerate growth; we want to reach in 5 years, where it would take us 10 to 15 years to reach organically. We have made strategic decisions about our products, markets and channels. We envision M&A as a way to breach the gap between where we are today and where we wish to be. The gap is what gives us the opportunity for M&A and not the other way around.
Today your organization has more than 12,000 employees. How do you keep a culture of belonging to a common company? Is it important?
It is very important. In fact, so much that even before we finalize a deal, we evaluate how likely and synergistic people integration is. If we have doubts about being able to integrate the cultures of the organizations, then the deal will not happen. While there is no perfect match, we should at least be confident that both cultures can be integrated, otherwise it will not make sense. The first 100 days of the integration period are the most important. Our focus at this stage is totally on people: their roles, their development needs, their ambitions, etc. We ensure that we retain the key people in the teams.
Today, we ensure that any employee of the acquired entity has the same benefits as that of a Schneider employee, with the same tenure from the joining date of the acquired organization. This helps establish a sense of belongingness and unity.
What is your strategy post deal? Do you follow a “tightly coupled” or “loosely coupled” approach? Why?
We follow two different models depending on what is the strategic intent of the transaction. It can be a fully integrated model that starts from day one, where integration normally takes between 3 to 6 months with the acquired company till it is fully integrated in terms of HR processes, manufacturing, functioning, etc. In the second model, a transaction does not involve any integration at all. In the case of Zicom Electronic Security Systems, it was a fully integrated acquisition, as that was the way we felt the benefits of the transaction could be maximized. In the case of the latest transaction, Luminous, we intend to keep the company functioning as it is today. We want to maintain the brand and the working as it is as we believe, for the B2C market, the brand and position of the company is very important.
What are the steps you follow in every deal? How important is the people angle in any transaction?
The people angle in a transaction is crucial, especially in India. From pre-deal to implementation, people and cultural synergy is very important, since there is a possible risk of losing key people in the early days of integration - hence eroding the value of the acquisition.
What is your advice to companies looking at expanding through M&As? What are the risks?
Firstly, be clear on the strategy. M&A opportunities should not influence the strategy, but the strategy should drive M&A as means to achieve the goals that the organization has set for itself. M&A should not be undertaken in an opportunistic way but as part of the planned strategy.
Secondly, M&A requires support from the top. Once you decide to go ahead with a transaction, you need to be able to act quickly and execute flawlessly. If the management does not support the M&A strategy and empower the team, there are many risks that will come to culminate into a successful deal.
The third is cultural fit. Closing the deal is just 5% of the overall operation. One still has 95% thereafter post deal, which is integrating the teams and making them work together. The only approach for excellent execution is to ensure having a very strong process for the first 100 days.
The biggest risk is retaining people post deal. In India, this is especially true due to the talent demand–supply mismatch. Competitors will always be watching for the right time to poach talent and in an acquisition situation, the uncertainties and risks make it a great ground for competition to take people. It is for these reasons that it is so important to plan for the first 100 days and to execute flawlessly towards people integration.
In all acquisitions we have done in India, we have been able to retain 95% of the talent. This is a great achievement and I think the credit goes to our structure and agile process of integration that is critical to ensure that people know their place in the new organization and feel engaged, valued and motivated.
How to ensure a successful M&A?
- Be clear about the strategy. M&A opportunities should not influence the strategy, but the strategy should drive M&A to achieve organizational goals.
- Have the required support from the top: There must be support from the top management to ensure that the Merger or Acquisition is successful.
- The first 100 days are crucial. Closing the deal is just 5% of the overall operation. 95% starts post deal when the companies must work towards integrating the teams and make them work together.