Four Ways HR Can Support M&A Success
Merging companies requires thousands of worker-hours to integrate systems, processes and workforces, but scant time is spent understanding how well varying cultures will work together.
From a strategic perspective, an acquisition or merger is typically a path to faster growth or market dominance. But the ability to achieve those goals is far from assured, as many deal makers have found over the years. In fact, the failure rate of mergers and acquisitions in many studies conducted over the past several decades show that the rate of failure is at least 50 percent, with one study finding that nearly 83 percent of organizations do not achieve their merger goals.
Most experts agree, that the primary reason that most merger and acquisition (M&A) deals fail is a result of poor integration! In a 2006 study by the Corporate Leadership Council, senior executives reported that integration was the greatest source of failure in M&A and rated several human capital aspects as most critical to successful integration.
Integration management from an HR perspective is the process of monitoring and proactively responding to human capital barriers to integration success, allowing for the company to realize the full value of a deal. In this same study, the most commonly cited human capital barrier to M&A success was an organization’s inability to address cultural integration issues.
With this in mind, here are four ways that HR can help support the merger and acquisition process:
- Get involved in the acquisition process early
At the beginning of any cultural integration work it is important to set clear goals, structure, and leadership from start. This means bringing people together on project teams from very beginning, not after a deal is signed, but during the due-diligence phase of any M&A project. The primary goal of cultural integration is to work to identify existing values and branding to determine how to take the best of both worlds and combine them.
Surveys and focus groups should be conducted by HR to ask questions intended to gain a better awareness of the culture of the acquired company and then use the answers to help identify gaps or risk areas. Sample questions include:
- Who’s running the company?
- Who does the talking in the meetings?
- Speed of decision-making—fast or slow?
- Why do people like working for the company?
- Are individuals in clear functional roles or doing work across functions?
- How formal is the working atmosphere?
- What do people wear? Formal? Casual?
- How do they refer to one another? First names, Mr./Ms.?
- Appetite for risk?
- What kind of process documentation is available for review?
- Conduct due diligence to identify human capital risks – As part of the due diligence process to close a merger or acquisition HR has many areas they need to focus on. These include, but are not limited to, a thorough review of the seller’s employment and benefit policies, current list of job titles, compensation scales and competency frameworks. Additionally, if done right, special attention is paid to understanding the culture of the organization to identify any potential challenges that might occur as the acquiring organization begins to integrate these new employees into their organization.
As part of the due diligence efforts it is also highly recommended that you attempt to identify ‘culture carriers’ —employees who are highly/positively influential— to help identify specific areas of cultural fit & risk within both the target and acquiring organizations. This can be done through a series of carefully constructed interviews, but if you want to get even fancier, consider conducting a social network analysis study to help identify who the influencers, brokers and bridges are within each company. See “Additional Resources” for more information on this topic.
- Plan for the human side of integration
According to a 2015 survey by Robert Half Management, employee anxiety spikes immediately following news of a corporate merger. Managers need to keep team members apprised of new developments and provide reassurance where they can. Effective cultural integration starts with ensuring individuals feel understood and recognized. Pre-close, a variety of approaches to understanding and affecting culture are recommended. These can include the following:
- Online surveys to identify what it feels like to work at the acquired organization and impressions of the new organization.
- Focus Groups designed to understand how to best minimize impact of cultures
- Employee data: Getting each acquired employee set up with an employee id before they start is essential to making sure the employee has access to all systems and resources they need to start working on day one. While this in important to onboarding in general, it plays an even bigger role if onboarding an employee due to M&A. This is also the number one factor that if not done well will result in greater levels of attrition amongst these groups of individuals.
- The little things matter: Have business cards, office supplies and a work station ready to go on their first day
It is equally important to continue to address the human side of integration, post-close. To do this, consider involving the broader employee population in directing integration initiatives. Additionally, HR should try and complete a job analysis for all key roles prior to integration. It is important to make sure that both the acquired employees and the existing employees understand their roles and job duties as a result of a merger or acquisition.
Address any areas where there is considerable overlap as soon as possible, if not before the integration process begins. Lastly, use focus groups to provide opportunities for small groups of individuals at both the acquired company and affected teams to share feedback on the process to date and ideas for ensuring a smooth integration.
- Measure performance to ensure future improvements:
The target company should examine both hard financial data and soft measures, such as training participation and employee engagement, at regular intervals during the first twelve months post-close. Examples of financial measures/factors to consider in your evaluation include revenue, productivity and customer satisfaction rates. Other soft measures can include employee retention/turnover, performance and the frequency with which new employees leverage networks within the acquiring organization.