Article: Unlocking the value of HR in Mergers & Acquisition

Strategic HR

Unlocking the value of HR in Mergers & Acquisition

HR holds key into making a “Go or No-Go decision” in M & A
Unlocking the value of HR in Mergers & Acquisition
 

Investing in people (Integration of talent) is a game changer for any successful M & A

 

M & A strategy has become a part of the natural business rhythm. The reasons to pursue an acquisition are various and most acquisitions have multiple rationales, from creating synergy through enhanced capacity utilization, accessing new technologies and market, leveraging economies of scale, distribution channel and cost optimization.

Acquisition is about businesses, people, strategy and numbers. It significantly increases risk, regulatory and cultural challenges. The critical success factor hinges more on “How to integrate” the acquired company’s assets (non-tangibles - people, process and practice) than “What to integrate” (tangible assets….plant, machinery and distribution channels etc). Handling the intangibles, i.e. retention of key people is the most crucial aspect in M & A. Research suggests that 25-30 % of the senior management of the acquired company leave within the first year of the deal.

Value Add HR services in Mergers and Acquisition

Getting to grips with a company’s mergers or acquisition is one of the most challenging issues HR professionals face. Understanding the employment law issues, and critical people issues such as leadership, employee communications, talent retention and cultural alignment are vital for success and can really make a difference to the sustainability of the deal. With  big to medium ticket size M & A activities, it is imperative that HR specialists become involved in the pre-merger and acquisition processes such as due diligence right through to the integration process and post deal activities. People and communication are at the heart of successful integration. Not surprisingly, organizations place significant attention to HR involvement during the “due diligence”. Companies who involve HR upfront stand a better chance to perform better than those who consider HR as a mere “recipient of deal”. The key HR focus areas include retention of key talent, building organization capability, cultural audit/integration, managing resistance, restructuring, re deployment and alignment of compensation & benefits.

Cultural Audit

Mergers are controlled by investment bankers, lawyers, and accountants but culture issues, in essence, either make or break the deal (HR issue). The common cultural assessment or audit usually includes understanding the target company’s shared values, code of conduct, reward and recognition, decision making, conflict management, employee communication etc. There are several corporate examples of a failed M & A due to cultural incompatibilities. Few examples are - Upjohn vs. Pharmacia (US & Sweden) - hard-driving, paternalistic, centralized vs. causal and Daimler & Chrysler (US & German) - conservative, functional structure, bureaucratic vs. lean, speedy and product driven operating system. Cultural differences often appear to be deeper than perceived. The fundamental causes of culture clash or mismatch are frequently attributed to leadership/management practices, organizational culture, business drivers and transparency. Cultural differences, especially being a sticky issue, need not be over played on the pretext of communication down load.

HR Touch Points as a catalyst of change

Clearly, M & A is a deep and transformational change with respect to the overall organizational strategy, structure and various stakeholders (employees, shareholders and customers/suppliers etc).  Leadership and effective communication help to transition stakeholders along the change acceptance curve from first contact through the point at which they internalize the change, through a planned and managed process. HR as the change leader, should adopt an approach of acceptance, reassurance, and encouragement and smartly manage the predictable dynamics of change. Communication, in the most compelling manner, articulating the business realities and yet giving hope to the employees, is perhaps the lynchpin of engaging employees in the midst of ambiguity, trust deficit and organizational power conflict. While there is  no “one size fits all’’ framework on handling M & A, the common business wisdom clearly advocates the following check list or the HR touch points in a run up towards a successful M & A deal.

Understand the employment law framework surrounding mergers and acquisitions. Merger refers to one company’s legal entity being combined with and totally absorbed with the parent company. Acquisition, on the other hand refers to the process under which the transfer of stocks or assets from one company to another (seller to the buyer).  This calls for fair understanding of the legal framework around various issues like common payroll, health insurance portability, retirement, pension, ESOP and defined employment benefit plans.    

Learn how HR can make a difference in the pre and post M & A stages of the deal and help lead the company throughout the transition process. Managing post M & A is the litmus test for HR as the real time integration of people, policies and practices hold center stage and in full employees’ view and scrutiny. A carefully documented 60 days – 90 days integration plan could be a handy tool in a “formal employee communication forum”.  The onus of taking employees on board in the change management requires calibrated approach to address four key points or 4 Ps. First, the purpose – the business case or raison de etre as to why are we changing and why now? Second, the big picture about what are the changes in M & A and the point of arrival for the organization and employees at large. Third, the plan or the transition timeframe and the impact analysis. Finally, the part (role) the employees will play in the transition process involving opportunities or the value addition, employees can make.  Involving key employees across function is the best way to drive awareness, ownership, buy- in and eventually inclusive integration.

Hear practical guidance on how to build a common culture and identity. Culture integration being a stick issue in M & A, needs deft handling. The start point is to accept and respect the distinct cultural nuances as they are, followed by picking up the best practices or the virtues of the distinct nuances and develop a common culture which best supports the business goals in the new avtar. The caveat is to not underplay or overplay cultural issues and settle for a meaningful and workable environment to evolve over a period of time.  

Learn how to identify, motivate and retain talent during the transition. The people leader should first manage himself/herself  throughout the transition period by taking business ownership and thereafter support and influence employees to get them on board.

Final thoughts 

Investing in people (Integration of talent) is a game changer for any successful M & A. In the changed business environment the key deliverables rests squarely on the senior leadership team. Thus re-building the team and deepening people capability becomes one the prime HR bets towards creating value for the business and enhancing overall employee experience. As a business partner, HR should identify key talent, nurture and preserve its “People Balance sheet” to navigate through the complex world of M & A. Flawless execution of HR operations and speed of execution is the need of the hour followed by high caliber HR analytics on talent management and review, consistent reward & recognition and development plans.

A transformational change like M & A is bound to throw challenges before HR in terms of active and passive resistance, skepticism and grapevine amongst employees. The idea is to carefully filter out the logic based resistance through continued employee connect and skillfully decimate the emotional resistance to change. Further, HR needs to engineer and celebrate some early wins within the organization to send a message across that M & A transition is on track.

In a fast changing borderless world and specifically post economic slowdown, cross border M & A in the emerging market (BRICS) has gained momentum. This phenomenon is in sync with the emerging global skills set, e. g agile thinking, digital business skills, managing virtual office, employee diversity and inclusion.

HR, thus holds key into making a “Go or No-Go decision” in M & A. Ultimately, the proof of every successful integration boils down to seamless integration of people, process and practice. Simply put, HR matters in successful M & A.

“Almost always, our destiny is determined not by what happens to us, but by how we handle what happens.”  Price Pritchett

 Disclaimer: This is a contributed post. The statements, opinions and data contained are solely those of the individual authors and contributors and not of People Matters and the editor(s).

 

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Topics: Strategic HR, #MergersAndAcquisitions

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