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Merger integrated Organizations and HRM

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Why HRM issues are important for organizations undergoing m

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Merger integrated Organizations and HRM

  1. 1. REALIZING THE IMPORTANCE OF HUMAN RESOURCE SYNERGIES IN MERGER INETEGRATED ORGANIZATIONS Dr. Prashant Mehta Assistant Professor, National Law University, Jodhpur
  2. 2. <ul><li>“ 83% of mergers fail to produce any benefits for shareholders and over 50% actually destroy value… the performance or underperformance of the workforce is the key to success or failure” </li></ul><ul><li>CENTRE FOR EFFECTIVE PERFORMANCE, AUGUST 2007 </li></ul><ul><li>“ Senior management who has been involved in M&As identified talent retention as their biggest challenge I leading a successful merger or acquisition”. </li></ul><ul><li>THE FORUM CORPORATION </li></ul><ul><li>Various studies shows that 1/3 to ½ of all acquisitions are subsequently divested </li></ul>H IGHLY R ESPECTED OR H OPELESSLY R EACTIVE? HR
  3. 4. - Help to identify issues / planning due diligence - Plan due diligence for people / organization cultural fit - Help to educate the “deal making” team - Help to develop acquisition guidelines - Estimate people-related transaction costs and ongoing costs - Identify/assess cultural differences - Estimate people-related savings - Recommend HR policies and programs - Validate intangible assets - Assess costs of integrating HR systems Leveraging HR – # Pre-deal Human Resources can add value to the M&A life cycle in the following ways:
  4. 5. - Develop strategies for employee communications - Design programs to retain key talent & lead the integration effort - Develop total rewards strategy for new entity - Help new organization cope with change - Define organization blueprint and staffing plan - Monitor employee attitudes and engagement - Manage selection, placement, de-selection/outplacement process - Outline people goals and guiding principles - Form people-integration teams to manage labor relations - Advise on productivity / workforce synergies - Recommended assessment / selection method Leveraging HR – # Integration Planning
  5. 6. Align HR policies, programs, and practices with business practices Monitor progress of people-related synergies and ensuring workforce momentum is sustained Ensure incentive programs are designed to reward executives and key employees for achieving the goals of the merger. Recognize and reward behaviors that support the new culture Consider cultural behaviors that support the new culture and align culture with the vision and business strategy of the combined organization Identify the desired culture and gain agreement from senior management and opinion leaders of both organizations Leveraging HR – # Implementation
  6. 7. - Ability to evaluate another company - Ability to advise regarding employee sensitivities / attitudes - M&A literacy and integration know-how - Ability to plan and lead complex integration projects - Knowledge of best people practices / systems - Knowledge of how to retain and motivate critical talent - Expertise with people / organization / culture integration # “Hope is not a strategy” People must have specific skills, knowledge, abilities, and experience in order to succeed, among them:
  7. 8. The Need <ul><li>How do you avoid “becoming a statistic ?” </li></ul><ul><li>Typical, avoidable errors in attempting to realize the intended value of the acquisition. </li></ul>
  8. 9. How Do You Avoid Becoming &quot;A Statistic&quot; of M&A Failure? <ul><li>75% of mergers and acquisitions fail to achieve their intended value or have failed to increase shareholder value and more than 50% have actually reduced shareholder value. </li></ul><ul><li>25% of acquisitions return the cost of capital. </li></ul><ul><li>Productivity typically drops off 40% to 60% during the first four to eight months after the merger is announced. </li></ul><ul><li>Nearly 50% of the acquired company's senior executives leave in the first three years after being acquired. </li></ul><ul><li>Competitors rush in during the typical 24 month transition period to steal clients and your best talent. </li></ul><ul><li>One primary way of not becoming &quot;an acquisition statistic&quot; is to effectively manage the integration process from the earliest stages of the acquisition process.  </li></ul>
  9. 10. Typical Errors in Attempting to Realize the Intended Value of the Acquisition <ul><li>Failure to establish an Integration Manager accountable for managing the integration process and achieving the integration targets through post-closing completion. </li></ul><ul><li>Allowing ambiguity about the overlap or transition of accountabilities between the Integration Manager and the General Manager accountable for the new business post-closing.  </li></ul><ul><li>Focusing on hard assets and financials (easily measured) and ignoring the soft capabilities and knowledge requirements of the new organization (more difficult to measure). </li></ul><ul><li>Ineffective &quot;gate keeping&quot; between the two organizations during due diligence and integration planning. Too many well-intended visitors disrupt daily performance. </li></ul><ul><li>Not managing the perceptions and expectations in contacts between the two organizations. </li></ul><ul><li>Confusion over what to preserve from either the acquiring company or the target company. </li></ul><ul><li>Assuming that the value of the acquisition is achieved at the closing of &quot;the deal”. </li></ul><ul><li>Selecting &quot;C&quot; grade talent to populate the Core Integration Team. </li></ul><ul><li>Ignoring the importance of cultural barriers to integration. </li></ul>
  10. 11. <ul><li>  Failure to reach the hearts and minds of the acquired employees early in the acquisition. </li></ul><ul><li>Moving too slowly in integrating the companies [where total preservation as a separate entity is not the objective]. </li></ul><ul><li>Not measuring employee alignment with and commitment to the necessary post-closing changes. </li></ul><ul><li>  </li></ul><ul><li>Failure to use selection and retention processes that acquire the best talent from both sides. </li></ul><ul><li>Ineffective project management of the myriad of details and potentially hundreds of involved or affected people. </li></ul><ul><li>Assuming there is nothing to be learned from the acquired company, requiring that they need to be totally &quot;rehabilitated&quot; according to the acquiring company's current practices. </li></ul><ul><li>Assuming that there is such a thing as a &quot;merger of equals.&quot; </li></ul>
  11. 12. HR FOCUS: FIT <ul><li>Culture </li></ul><ul><li>Organization and Management </li></ul><ul><li>Talent Management Programs </li></ul><ul><li>HR Capabilities </li></ul><ul><li>Regulatory Issues </li></ul><ul><li>External Environmental Issues </li></ul><ul><li>Key Performance Drivers </li></ul>
  12. 13. HR FOCUS: RISKS <ul><li>Retention – Vital Talent </li></ul><ul><li>Compensation Management </li></ul><ul><li>Retirement and Saving Plans </li></ul><ul><li>Benefits </li></ul>
  13. 14. KEY SUCCESS FACTORS <ul><li>Core Team Continuity </li></ul><ul><li>Comprehensive Integration Plan </li></ul><ul><li>Assess and Establish Culture </li></ul><ul><li>Integrate and Retain Vital Talent </li></ul><ul><li>Maintain Employee Commitment and Performance </li></ul><ul><li>Align HR Practice with Strategic Direction </li></ul><ul><li>Maintain Focus on Business Continuity </li></ul><ul><li>Conclude the Merger Quickly and Efficiently </li></ul>

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