Anton Franckeiss explains how employees can be strategic in a merger and acquisition, how they are impacted by it and the importance of an effective HR policy throughout the period.
Mergers and acquisitions (M&As) are motivated by a myriad of factors, but they are usually intended to provide an increased scale of operations, resources and capabilities, achieve (or, at present, recover) financial strength, and broaden market reach to support growth and underpin medium and long-term competitiveness. Even in a depressed market, M&As share the common objectives of growing market share and industry consolidation.
Yet research shows that only half of respondents are typically able to fully achieve those goals. Less than a third are able to enhance the strength of their brand image – a frequently cited goal. In the present environment, where M&As are often principally motivated by survival, this level of failure should ring alarm bells: you cannot, after all, achieve only a fraction of ‘survival’.
Even where survival does result, numerous global studies show that even well-conceived deals can fail to deliver all their promised benefits. Although the aim may be greater strength and stability, the very action of merging or acquiring actually introduces a protracted period or unexpected degree of weakness or instability. The intended end result may be a single, stronger entity, but M&As are not meant to be reductive exercises. The aim should not – indeed, cannot – be a simplistic ‘one plus one equals one’; the total should be greater than the sum of the parts.
A price to pay
M&A failure usually has little to do with poor strategy or paying too much to complete a deal – purchase valuations are not the only potential prices that organisations can pay. All too frequently, failure results from people-related issues – the loss of key talent, culture clashes as staff of two existing and differing cultures try to find ways of working together, or management conflict over the direction of the new company. Without careful attention to these issues, the price paid for an M&A may be far more than just the valuation, no matter how fair.
Underestimating the profound and significant impact of M&A activity on the merged businesses’ people, from senior leadership down throughout the organisation, can cost their successor organisation dearly.
People and cultures do not respond to mergers in the same way as more literal business assets. Databases and divisions can be merged, and office layouts and furniture streamlined, but biosciences have not reached the point where the desired elements of two people can be combined into a new, fully-functioning, committed and uncomplaining new person.
Managing this ‘people impact’ is a crucial dimension of managing a successful transition to the new business strategy, achieving a unified leadership and developing the desired business model/organisation, yet often it receives scant attention. An informal survey carried out by ASK across all sectors and geographies among our customer base and social networking contacts, in the second quarter of 2009, showed the following main obstacles to achieving M&A success:
- The impact on both businesses’ ability to sustain financial performance
- The loss of productivity and distractions to business drivers as the merger is rolled out
- A clash of cultures that drives negative behaviours and business loss
- The push and pull factors that can lead to the loss of top talent
- The positioning for power and a clash of management styles and/or egos
- A lack of management understanding of the different dimensions of change and how to enact change management
- A failure to appreciate the need to synergise the changes of process and people
- A poor understanding and/or communication of objectives
Of these, cultural differences between companies may be the single highest barrier to success. More than 50% of survey respondents identified cultural issues as a major obstacle to achieving the expected synergies, with many saying that addressing this issue early would have impacted positively on the outcome of the M&A.
As all of these factors are related to the strategic management of people – many of them very directly – the HR function obviously has a potentially significant role to play. It can add value in the early stages of an M&A by positively influencing decisions that will ultimately determine success or failure, such as the fit of the two organisations to be joined or the compatibility of the companies’ management and cultures.
The same research also reinforces the importance and the difficulty of integrating two cultures, and confirms that early HR involvement in cultural integration can make the difference between success and failure. Responses reveal significant gaps in every aspect of cultural integration, even in agreement about the most important attributes of the new company’s desired culture – attributes that should in turn influence the design of key HR programmes (including management development and succession).
Successful integration at this level requires a rigorous review of the cultures currently at play, of how each culture is defined and of how closely aligned they are to the strategic objectives and cultural design of the newly-formed organisation – aspects that organisations undergoing and planning an M&A should ignore at their peril.
A change in behaviour
To adapt to a new or changed culture – even one whose attributes have been clearly outlined and defined – people must also change the way they behave. Yet changing our behaviour is remarkably difficult, even when faced with real imperatives for survival. As the work of Prochaska and Di Clemente showed, only 5% of us can ‘self-change’ without false starts, failures and relapses: the rest of us need on-going support. Our workplace behaviour is also not just personal, but interpersonal.
In the context of an M&A, many will be working in new teams or in new relationships with colleagues both new and old. Yet even old colleagues will be confronting new terrain and while every crisis may be an opportunity, the opposite can equally turn out to be true. As an M&A is implemented, everyone faces new uncertainties and simply being in the same boat is not necessarily a successful bonding and team-building activity if no-one is familiar with the boat.
It is vital, therefore, that HR takes proactive steps to develop strategies that will recommit and engage those mission critical employees who will make the new company a success. In any M&A scenario, some (if not all) employees are being asked implicitly – or even explicitly – to remain loyal to an organisation that may differ quite fundamentally from the one for which they have been previously working.
These strategies must be underpinned with change management programmes and learning interventions that help managers to implement the programmes necessary for success. As awareness of the importance of people issues in M&A activities grows among CEOs and other senior management, it is imperative that HR professionals see the need to take a more strategic – and, in many ways, a more altruistic – role.
In our experience, moving from a centralised HR function to a regional model or vice versa, for example, brings all of these people issues more sharply into focus. But this is no time for HR empire building, or for a clear intent of centralising HR just for the sake of exerting firm control. Consultation, communication and ‘ local’ translation of the key strategic messages are crucial to removing the obstacles to successful merger.
Managing the impact of an M&A on the people of the businesses in question is a crucial dimension of managing the successful transition to a unified leadership, business model, and organisation. Ignoring or giving too low a priority to longer-term ‘soft’ issues can all too easily lead to a swift, hard lesson.
Anton Franckeiss is practice director at behavioural consultancy ASK.
2 Responses
Involving employees to ensure success
Around 50% of our work at INVOLVE comes from clients wanting us to help their employees understanding and living their strategy and values. We know that the sooner employees are involved in the transition, the more engaged they become – and we all know what that means to productivity and the bottom line.
Merging CULTURES in M&A
Merging cultures is indeed a tricky component of M&A. Doing so requires merging values and strategic objectives and clearly communicating these values such that they become real to ALL employees in their daily tasks, regardless of originating firm.
These five steps will help merger cultures as well as business in an M&A:
1) Merge the two companies’ vision and values into a new statement that is meaningful to employees from both organizations. Then use the strategic recognition program as a positive communication tool of the vision and values to all employees.
2) As with any strategic program, secure executive sponsorship of the recognition program, but be sure to include key senior leadership from both companies in the initial roll-out.
3) Measure: In the special case of M&A, specific goals should be included to track the progress of the merger of the two cultures into one of appreciation across the global workforce.
4) Survey employees prior to program launch and periodically afterwards to determine its effectiveness in achieving culture goals post merger.
5) Launch the program soon after the M&A is announced to engage all employees in this new culture of appreciation, help them understand their continued value to the merged organization, and unite all employees behind the new vision and values.
I expand on each of these five points in a more detailed post here: http://globoforce.blogspot.com/2008/05/uniting-company-cultures-and-goals.html