Issues related
to human capital and people practices have assumed greater
importance in the last few years. More and more companies
are realizing that their competitive advantage is directly
linked to their human capital. While they are conscious about
this there is little clarity on how to go about it, especially
when it concerns prickly issues like mergers and acquisitions
(M&As).
The best acquiring companies think through the whole process
-- what type of culture do they want? According to Mr. Sanjeev
Saxena, M&A Consultant, Hewitt Consultancy, most companies,
are essentially driven by the financial aspects and leave
the people-aspect untouched till after the merger. And then
it is too late.
In the Asia-Pacific real M&A activity started only post-1997.
And it's only now that Indian companies have started going
going down the M&A route in a big way. M&A is a young
area for Asian companies, and they are just about learning
the ropes.
This HR Panel Research deals with the HR issues that arise
during an M&A deal. For further simplification purposes,
the issues can be clubbed under two broad headings:
(1) Pre-Merger/Acquisition Stage
(2) Post-Merger/Acquisition Stage
PRE-MERGER/ACQUISITION STAGE
Some of the issues that have been identified during the research
come into play during a pre-merger/acquisition stage. They
are Human Due Diligence, communication strategy for flow of
information, transparency, synergy, power equations, cultural
issues need to be addressed, leadership, team, job, person
and organizational fit, acculturation issues, mission, vision
and values.
POST-MERGER/ACQUISITION STAGE
Mostly in all M&A deals, HR comes into picture only once
the deal has been inked. This is not a very successful strategy
as it has been proven that the companies adopting such a strategy
face a much higher chance of failure as far as the merger/acquisition
is concerned. But some really pertinent and important issues
arise during the post-merger/acquisition stage as well. Some
of them are attrition analysis, post-merger communication,
people process integration, reporting relationships, divisional/departmental
changes, reallocation of jobs & people, Capability Building,
job insecurity, employee morale, job satisfaction, Comp &
Ben, Layoffs, retrenchment, HR policy implementation, management’s
attitude towards people integration issues etc.
A brief glimpse of what the literature has to say about these
issues:
Till today, close to 50% of the mergers have failed. Of these,
almost 80% of the failures attribute the lack of attention
to the human factors involved in the deal as the main reason
for the failure of the deal. Research has identified the lack
of effective communication and a clear Human Resource strategy
as the factors which would most likely bring about the demise
of the very foundation of any deal.
The synergy that most companies hope to achieve would remain
a pipe dream if these factors are not given their due importance.
Research Methodology
An extensive secondary research was carried out so as to build
a robust and credible foundation to the entire research. This
is intended to identify the key issues which form the crux
of this topic and to delineate the recent trends in this domain.
In order to further substantiate the findings of the secondary
research, the research further delved into the various issues
by incorporating a three-pronged approach:
• The HR/Top Management’s view
• The employees (Middle level) view
• A Consultant’s view
Management’s view-point has been sought using an open-ended
questionnaire while the employees have been surveyed using
a close ended objective questionnaire. An open discussion
has been carried out with M&A specialists from top notch
consultancies like Hewitt, Mercer Consulting, E&Y etc,
which forms the third dimension of the primary research.
Objective of the entire exercise was to highlight the gap
between “the rhetoric and the reality” or in other
words to clearly delineate the critical “human aspect”
that is imperative to make any Merger/Acquisition deal successful
in the current business scenario.
Given below is a sample of the gamut of issues which we covered
as partof this research.
Human Due Diligence
Financial Due Diligence has long been a prerequisite to the
completion of a merger or acquisition. Yet, most mergers and
takeovers have turned out to be financially unsuccessful in
the long term. When financial due diligence produces numbers
that look so good, why are the odds of success so poor? The
answer is "people." At their core, our organizations
are not numbers, they are human beings. And, the people of
the organizations--along with the numbers--determine the outcome
of any M&A initiatives. Thus, Human due diligence--like
its financial counterpart--brings structure and discipline
to the people side of the merger process.
Communication
A 1995 survey of over 330 European acquisitions conducted
by London-based Acquisition and Merger Research, found that
of the acquisitions studied, 50 percent failed to meet their
objectives. Of the subjects not sufficiently considered before
the acquisition, the post-deal communication plan came first
for over 75 percent of those surveyed. Whenever there is news
of any merger, apprehension prevails among the employees.
This atmosphere of apprehension becomes the breeding ground
for rumours. The employees start losing confidence in the
organisation and tend to become demotivated. Hence one of
the biggest challenges in an M&A deal is to ensure effective
communication both pre as well as post merger.
Attrition
Most M&As bring with them downsizing, reallocation in
some form or the other. There occur changes in the well defined
career paths and future opportunities of employees in the
organization. To add to this there are lingering apprehensions
about the new systems and processes which are going to be
on place post the deal like grading system, organizational
structures, compensation, performance appraisal system etc.
These developments create doubts in the minds of employees
about the security of their jobs and may have an impact on
their performance. Thus maintaining the productivity levels,
morale and satisfaction amongst the employees during the entire
process as well as after the completion is equally important.
If overlooked, the obvious outcome of all these apprehensions
leads to mass exodus of employees from their organizations.
People Processes
Leaders set the tone for the culture and for how relationships
are going to unfold in the combined organization. It is really
easy to get off on the wrong foot. The rush of success of
being on the acquirer side easily translates into condescending
attitudes about the other side (Marks and Mirvis 1998). The
pressure for success often leads to unilateral imposition
of integration plans on the target company (euphemistically
called the Big Brother syndrome), all of which does not build
trust or good relationships. When big organizations combine,
the dynamics go looking beyond merely at the culture —
the change often involves reformulation of major processes,
developing new policies and procedures. A separate transition
structure is thus required to create a successful post merger
equation amongst the parties.
Cultural Issues
Culture differences between the merging firms are a key element
affecting effectiveness of the integration process and consequently
the success of M&As. Furthermore, although managers agree
that cultural differences create organizational challenges,
yet the attention given to cultural integration issues during
M&As are at best tenuous and in some cases reactive. The
need therefore is to follow a structured approach in dealing
with cultural differences.
Management’s Attitude
After an acquisition, employees of the acquired firm can exhibit
varied behaviours. They can work hard to support the organization
after the acquisition (loyalty) can quietly continue to do
their job as before (compliance), can express their opposition,
working to change things (voice), or they can reduce their
effort and use working time for personal business (neglect).
As it has been noted, managers of the acquiring firm feel
stressed and uncertain (Jemison and Sitkin, 1986), as they
feel personally responsible for the close of the deal (Haunschild
et al., 1994) and see that their reputation for sound judgment
and career prospects are at stake. When the expectations for
post acquisition performance are not met, the managing teams
of both companies and the employees of the acquired company
enter a “cycle of escalating conflict and distrust”.
Managers of the acquiring company press for increased control,
while employees of the acquired company resist and demand
their autonomy. Some view mergers and acquisitions as power
games (Hunt, 1988) which create some excitement for bored
CEOs (McManus and Hergert, 1988). Thus, this arrogance, resulting
in imposition of tighter controls and squeezing employee potential,
creates problems from the very beginning of the process as
it disrupts the relationship between management teams and
sets the tone for a hostile climate during the negotiation
and implementation stages. Conclusively the right attitude
from management’s side is imperative to conclude a successful
deal.
There is a growing trend towards involving HR into the M&A
deals right from the idea inception. This trend is positively
highlighting the importance of people issues in such deals
and the realization of the same by most of the companies.
But there is a long way ahead.
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.
- Robert Frost
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