The Role of HR in Mergers and Acquisitions
The high failure rate of mergers and acquisitions can often be traced back to cultural incompatibility. Fiona Ellis looks at the crucial role of HR Directors in conducting human due diligence.
An edited version was first published by the HR Director, February 2011
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Mergers and acquisitions are serious strategic undertakings. In 2010 the UK saw the lowest M&A activity for more than ten years according to Thomson Reuters. However, in the last month of 2010 there was a bounceback as British companies announcing takeover deals worth a total of £2.4bn boosted the FTSE 100 . Let’s hope as a new decade dawns that UK industry will have learnt lessons from the many failed M&As that continue to blight the hopes and aspirations of business leaders.
Before embarking on a merger or acquisition it is worth bearing in mind the sign in the Ford Motor Company boardroom ‘Culture eats strategy for breakfast’. This is certainly true in mergers and acquisitions.
Mergers and acquisitions can have a toxic balance sheet culturally. It is a vital role that HR leaders can play and will prevent derailment, maintain productivity and retain key talent during a challenging time of change. HR needs to ensure that there is human due diligence so that the culture of different organisations is assessed as thoroughly as the financials of an organisation being acquired or merged. The effects of not fully integrating organisational cultures can last many years and hold back performance. It is also about identifying the kind of culture the new organisation needs to have to achieve the aims and objectives of the integration.
HR needs to ensure that there is human due diligence so that the culture of different organisations is assessed as thoroughly as the financials of an organisation
We have found HR directors welcome using a healthcheck tool on human due diligence which identifies some of the things to watch out for - communicating clearly about strategic intent, clarifying the level of integration needed, the cultural assumptions made in each culture, which can get in the way and how you can measure progress.
This healthcheck is based on the SCOPE model created by Ashridge International Partnership Study where the late Roger Pudney, working with Karen Ward, studied international best practice in making collaborations work to deliver competitive advantage.
Scope stands for:
Strategy
Culture and Chemistry
Organisational and Operational
Performance Measurement
Equality
The strategy, organisational and operational aspects are often well considered in terms of rigorous financial due diligence. But in times of economic downturn, private sectors are often forced to restructure and integrate operations quickly. With these pressures, other aspects, such as human due diligence, can be sidelined.
In the public sector there are often intense political pressures to show efficiencies from the merger or reorganisation and the change can be announced suddenly and the crucial work on reorganising and integrating often takes a long time. Bath Consultancy Group supported HR in the merger of two civil service departments with advice on transition support for teams and senior civil servants taking up roles in new organisation. The appointment process took four months and this challenges HR and leaders to maintain momentum. In the even more intense pressures today in public sector the world is needing to move faster.
So, how can HR managers and directors influence a merger’s success?
Strategy
For the strategy to be truly successful leaders need to communicate a compelling vision of the future with the new and continuing values for the merged organisation developed and agreed. It is critical to maintain clarity on strategic intent i.e. why the merger happened. This is usually clearer at the top of the organisation leading to a ‘hierarchy gap’ that strategic leaders often ignore as they do not realise that middle managers and below lose sight of the strategic benefit as they grapple with day-to-day integration. HR and communications can work together to ensure this message is not lost.
However, this is not about painting a wonderful but unrealistic picture. The potential unintended effects of the merger on customers, staff and suppliers need to have been identified and well thought through. People in both organisations need to understand the real and compelling drivers for change and that there is clear agreement on the level of integration needed.
Culture & Chemistry
Culture is a critical issue in why mergers fail to achieve their potential but a key question to ask is to what extent do you need to merge cultures?
A major decision is whether you want to merge cultures. Through experience, large global organisations can have legacy cultures that survive for many years. Old loyalties maintain different ways of working which disrupts performance and the creation of a new identity. Where a new company is being created such as a joint venture this is even more important, but not easy. In one telecoms company, which was created from two organisations with German and Finnish roots, these cross-national cultures played a big role and it was easy for stereotypes to be drawn. HR can often be caught up in the reorganisation. Enough time with skilled support is needed to help merged senior and mid-level teams deal with changes, particularly cultural.
In an acquisition of a smaller organisation by a larger one, you can risk destroying the culture that has been bought by trying to inculcate the overall culture too soon. For example, a start up known for innovation, and agility will have a loose, few rules culture and is often affected by being too quickly subsumed into the global organisation. HR in the global organisation will often not even see the problem as it is hard to step out of the shoes of a global mindset, instead thinking they are bringing order, processes, and performance management where there was none before.
Using devices such as the healthcheck questionnaire, HR and senior leadership in both organisations can work together to identify the legacies of each culture and to undertake a risk analysis on culture clashes at an organisational and operational level.
Research indicates that there is a window of opportunity for making change roughly in the six months after a merger. If change is developed in this period then people will work with it and own it. If however it is simply experienced as an administrative process then people switch off. Ideally the desire for continuous improvement has to be embedded during this window of time. It is possible to make changes outside this period but it will be harder to build momentum.
Some of the challenge for HR leaders is to demystify the language and term of ‘culture’. It is often used and understood subjectively. A common language must be established in both organisations with a collective model for culture that is well understood.
Culture does not just exist at the top of organisations. Culture is relational and lives at every level, in the relationships between people, departments and stakeholders. It is vital therefore that every manager is fully equipped, in terms of capability and capacity, to work and lead integrated teams so that productivity delivers in the nervous early days of operational integration.
Organisational and operational
For organisational and operational success there will be a level of experience and competence needed in terms of handling large scale mergers and acquisitions.
HR departments have an integral role to play in many aspects – restructuring, aligning processes, and systems, appointing senior teams but two critical areas include retaining talent and maintaining engagement through change.
First is the identification and retention of key talent who will be vital to the success of the future organisation. They will need to be well supported despite the bosses’ anxiety to show early results. It can work well to be clear quickly who are the people you most want to keep through encouraging managers to make quick decisions, setting up events for high potential people, as the risk of losing people through uncertainty post merger is greatest without this.
Secondly, a clear engagement strategy so that people are well informed at crucial stages of the integration. Mergers will not work if the people are not engaged. There has to be a strategic intent to which they can sign up and in which they are involved in terms of implementation.
Fatigue post merger for senior leaders involved and the stress of transition can have a significant effect on performance at all levels. In an acquisition for those at senior level the initial euphoric blip when they are bought out can actually get in the way of understanding impact on those around them.
HR at all levels will need to work with managers to understand the transition curve so they are well equipped to help their people manage transitions into new roles, responsibilities and teams.
Performance Measurement and Equality
This is a key area for HR and directors need to be well positioned strategically to ensure that cultural and human due diligence is conducted.
It is easy during mergers and acquisitions to become internally focussed. There needs to be a clear line of sight between strategy, leadership behaviours, service or product brand, and the customer experience and the ability to identify and track the progress of a successful integration. Equally, a clear understanding of the inter-relationship between the financial, structural, operational and cultural dimensions of the merger is required. Tracking progress on the merger through performance metrics, retention rates and employee surveys is important to do at board level. Ideally focus groups and feedback through 2 way communications meetings can tell you more about how the merger is being perceived than distant surveys.
In terms of equality, potential partners must be respected and valued for what there are bringing in. It should be a genuinely mutual relationship that produces significant added benefit to both parties. Leaders and HR need to ensure unhelpful stereotyping does not happen and model this equality in their behaviour but also allow people to air frustrations- not an easy task!
HR’s role in transition
Going through a merger or acquisition is a rigorous process. Often business leaders will have been working on the details for months if not years. Once the deal is signed and announcements made there will often be a desire to get back to business and to see the results quickly. However, for people within the organisation, these changes might be new.
There will often be more questions than answers. It’s not unusual for budgets to be unclear, staffing structures to be under consultation and working arrangements to be disrupted as new units and systems are established.
Conclusion
Given that uncertainty abounds during a merger or acquisition it is tempting for HR departments to put development on hold until these questions are answered. Don’t fall for it! Successful mergers require managers at all levels to be working through issues and supporting staff, learning as they go. HR leaders are vital in ensuring the transition to the new organisation, its culture and ways of working are fully supported and that people have the required development.
