By Dinesh Weerakkody :
The rapid change in the market place, due to globalization, growth in outsourcing, the need to speed up growth and the shortening of product cycles and the rapid pace of technological innovation, has forced companies to look to mergers and acquisitions (M&A) as a part of their business strategy, to meet their business goals.
Depending on how the two firms see their position in the merger, they would broadly fit into one of the five scenarios - rescue, equal, partnership, friendly, hostile. Regardless of the reasons for the merger, the objective is to produce advantages for both the buying and selling companies, that is, the resultant entity should be greater than the sum total of the individual entities.
While there are many reasons cited for failures of mergers, the key area that has become very important is to understand the process of managing the human resources in a way where they are not only retained but also engaged to do their best work. A merger occurs when one company is combined with and totally absorbs another. Operations, facilities and functions are rationalized and combined for maximum efficiency.
The cultural beliefs, norms and infrastructure of the acquired organisation generally change to the acquiring culture for the integration purposes. The acquired organisation effectively loses its identity.
Acquisition is a process used to transfer stocks or assets from one company to another (from seller to buyer). The process of acquisition can take place by a stock transfer, transfer of assets or a merger. Acquisition is a generic term used to communicate the transfer of ownership.
The main objectives for M&A could be summed up as below:
Top line growth objective
Survival by developing critical mass
Hybrid mergers for spreading risk, cutting costs, creating synergies or could also be a defence mechanism to survive against competition
For market dominance or economies of scale
To get talent, knowledge and technology
Vertical mergers for efficient channel control
Growth for global reach
Acquire a bigger asset base to leverage borrowing
Adding a core competency to provide more combinations of products and services
HR challenges
The challenges faced in the process of integrating the workforce in both entities are many and complex. While one would expect that a merger would bring about the desired growth, a majority falls short of their goals and objectives. While some failures can be explained by financial and market factors; a substantial number can be traced to mismanaged human resource issues and processes.
People are the key to making a merger work and it is the human resources (HR)-related problems like cultural ignorance, leadership/management disputes, loss of key talent and the inability to manage change, which are the basic reasons why mergers fail to deliver the desired results.
The top five obstacles to achieving success in a merger or acquisition are:
1. Incompatible cultures
2. To sustain financial performance
3. Loss of key talent and a clash of management styles
4. An inability to manage/implement change
5. Objectives/synergies not fully understood
All these obstacles are either directly or indirectly related to the management of people and those cultural differences between companies may be the single barrier to success.
Reasons for failure
In a firm, it is the HR’s job to find recruit, train and develop, engage workers, resolve conflict and keep an eye on productivity. However, in most M&A deals, HR professionals usually have little involvement at the pre-deal stage, which goes a long way to explaining why people, organisation and culture issues tend to get overlooked, often the members of the deal team have no skills to assess the HR soft issues that are so critical for integration.
A merger has a profound effect on the people of both companies and managing this impact is an important part of managing a successful transition to a unified leadership, business model and organisation. By recognizing and responding appropriately to the impact of the deal on each employee, HR managers can set the tone for long-term success or failure of the new company.
In the pre-deal stage, it is the organisational design that needs focus, particularly assessing and selecting the right leadership talent. Remuneration also plays a key role and needs to be considered from a multiple perspective to identify the impact on employer, employee and cost.
Maintaining and building morale and loyalty, treating people fairly are the other areas in this stage that play a significant role. In the post-deal stage, it is the responsibility of HR to plan and manage the integration process to ensure a successful integration, to do that effectively, HR needs to manage employee communication, manage the change and the new culture, focus on talent retention and selection, integrate the HR functions, integrate pay and performance and also the leadership development.
By managing this effectively, the new entity would be able to engage employees in productive work and keep their motivation/commitment levels at the highest possible levels to achieve the desired goals and also retain the key talent needed to manage the merged entity.
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By Dinesh Weerakkody :
