The HR Perspective (After-all it's all about people) !

HR has consistently been in the spotlight in relation to mergers and acquisitions (M&As). In fact, HR's contribution can be a make or break success factor. It also provides a high profile opportunity for HR practitioners to demonstrate themselves as a genuine strategic partner. Continuing this series from the previous issue..........

Getting ready for change

HR must build the organization's change readiness and the capability of its managers to successfully manage the merger. This will help the organization to avoid confusion and prevent people from going in different directions. HR and organizational development teams should be well-placed to take the lead in ensuring that managers at different levels are able to lead and implement change in the business. This requires excellent technical proficiency, good leadership, communication and conflict resolution skills, and the ability to collaborate cross-functionally.

To start of with, the HR's involvement should be earlier in the decision making process. Taking a wait-and-see attitude will lead to an irrelevant role for HR. Instead, the role must be orchestrated so that its value becomes integral to the deal. "Successful firms were significantly more likely than firms deemed unsuccessful to have greater levels of HR involvement in specific pre-deal activities". It is not only the audit or due diligence stage that the Human Resources gets involved. If the acquirer's HR department has the maturity and experience, it can have a greater positive impact on the integration phase than if HR is brought in only after the merger has taken place.

Many companies report that their mergers are successful but admit the end results aren't as successful as they could have been. Recent studies place the success rate of merged companies at 30 to 60 percent, depending on what criteria you measure. No matter how flawless a deal seems on paper, the results are often disappointing. Most merged organizations lose 1 to 10 percent of their market value in the first year after the merger.

There's a lot to learn about managing the transition period, optimizing short-term performance, keeping the highest percent of talent, and integrating processes and systems. Companies that don't address those issues may suffer a loss of profitability, top talent, and confidence in leadership decisions.

Although a multitude of factors can contribute to a disappointing merger or acquisition, success depends ultimately on the effective use of people. A recent research report shows that organizational and cultural problems are more likely to derail a merger than are financial factors.

From the due-diligence stage through the identification and appraisal of people to the management of culture issues and communication, people issues impact every step along the way. Such issues are essential and integral to the process and must not be treated as an afterthought. It's unrealistic to assume that one business can absorb another without being altered. When two companies merge, one may change more than the other, but both will change.

In order for the business to capture the hoped-for value from an acquisition, and for HR to achieve its ambition to be a strategic partner, HR practitioners must understand the broader business drivers behind the merger and the strategic position of the new organization. This requires business acumen, analytical skills and close collaboration with managers in other functions. Once this is understood, HR can bring in its expertise in the organizational and people issues that will be raised.

The earlier the involvement, the better

HR's lack of business understanding, whether real or perceived by senior management, means that HR is often not invited into the due diligence process at the beginning of a deal. Relevant hard measurements for cultural due diligence, alignments or misalignments in values and behaviors, and financial data on human capital costs and liabilities are significant considerations for deciding whether to make an approach in the first place, for price negotiations as well as post-deal restructuring.

Not being involved at the beginning of the process means that by the time HR is called in to manage the post-merger integration, its job is much more difficult. Thorny people and process alignment issues pop up that the deal-making team might not have seen coming. Often the problems are so great, and the integration so slow, that many M&As fail to achieve the value they were projected to, or they achieve it much more slowly than was originally anticipated.

From this perspective, it is crucial that HR shows its strategic understanding and ability to align HR strategy to business strategy from the beginning. This will encourage senior management to invite HR to participate early in the process, saving the company trouble later on.

My critical learning throughout all the M&A processes has been that "it's all about people."

Invariably, before a merger is finalized, the about-to-be acquired company's books, policies, practices, and past actions are scrutinized. The acquiring company's HR manager or managers have a number of areas to study, and from that examination determine a course of action. It is only through such an examination that one can plan and hope for as smooth a transition as possible under less-than-ideal circumstances. Please note that not all acquisitions are hostile. Often the acquirer is saving a once-viable company from certain demise, and there are also examples of strength through acquisition, e.g., Vodafone acquiring Hutch.

Next issue : Payroll, Compensation, Performance, Benefits...... 

Sabarigiri Varadha is a Serial Entrepreneur and VThree Consulting Pvt Ltd happens to be the part of his series. VThree Consulting Pvt Ltd provides MNCs' the most complicated technology in the world... the skilled human beings. Feedback can be mailed to sabarigv@ vthreeconsulting.com

Issue BG86 May08

Related Items:

---

Be first to comment this article

Only registered users can write comments.
Please login or register.