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Benefits and Pensions Monitor

In Successful M&A Activity There Are No Soft Issues

By: Donna Van Alstine

Too often the human resources people are left out of merger and acquisition talks. However, Donna Van Alstine, of Right Management Consultants, says this can affect the performance of merged companies.

n 1999, Right Management released a comprehensive study focused on merger and acquisition activity. Net/Net: During the 1990s showed North American companies invested more than $2.1 trillion in mergers, yet more than 50 per cent of these initiatives failed to deliver on the revenue growth expected! Why? Corporate North America’s overwhelming failure to recognize – and act on – the obvious: It’s the people issues that make a merger sink or swim.

With global merger and acquisition activity continuing at substantial levels, Right Management felt compelled to revisit this entire subject to get fresh perspectives on the issues of greatest concern to those responsible in all industries for making these transactions happen. Participants in the survey included key leaders from all industries who were directly involved in managing a merger or acquisition in their organizations. The survey measured post-merger/acquisition performance in the areas of productivity, culture and business integration, talent management, communications, alignment, and customer focus. Subsequent statistical analysis also showed how the handling of specific issues might drive key outcomes – notably value creation, cost savings, and growth in revenue and profitability.

Results showed that many organizations handled the human aspects of change ineffectively and that this shortfall had a measurable impact on business. All in all, the new survey results indicate that organizations – even those generally considered to have done a good job with their acquisitions – are not achieving the superior outcomes they would like to achieve, given the energy and expense required to undertake a merger.

Three of the key issues which were highly correlated with achieving value and growth after a merger were, in large measure, human resource issues: effective change management, assessment of cultural differences and similarities, and alignment of culture with strategy. But, in terms of performance, the findings indicate that HR issues are not generally given the priority they deserve during mergers and acquisitions.

The areas where survey participants gave their organizations the highest marks were productivity, value creation, business integration, and customer focus. Conversely, the four bottom-rated indices were talent management, alignment, internal communications, and culture integration. In short, the so-called ‘hard issues’ – the business results – tend to be addressed more effectively than the so-called ‘soft issues,’ which tend to deal with people.

While most would agree, in theory, that the two are really inseparable – that the business can’t exist without talent, communications, and so forth – the reality is that most integration efforts are focused on combining the most tangible aspects of an organization’s finances, IT systems, real estate, and on achieving maximum cost reduction. Because human resource executives are often perceived as not speaking the language of business, their involvement in merger planning and implementation is far too marginal and is often only an afterthought. For merger and acquisition activity to successfully create value, this has to change.

We believe that…

• HR issues should be weighed equally with business issues. Business objectives are achieved only when good people are there to achieve them.
• HR professionals are a key to successful implementation of M&A plans and they are critical to creating value from a merger.
• HR should provide full-time, dedicated resources on culture and change management issues, and should be able to provide thought leadership and implementation management on these issues.
• HR can add substantial value to the integration process by providing focus on talent retention during and following the transition. The survey shows improvements in this area and the HR profession should get its share of the credit. Talent retention has measurable value and HR can communicate and explain the costs of losing good people.
• HR professionals have an obligation to demonstrate that they understand how the business of the organization operates in order to make the case for the value of their expertise to the business. As well, HR professionals have a critical role to play with regard to the remaining key findings of the survey:
• New Organizations Need Aligned Leadership. Even the most competent leaders from the former organizations may not succeed at leading the new entity. Careful planning demands clearheaded assessment of needs and skills – and tough calls to select the right leaders.
• Arrogance Jeopardizes Value. Not only do acquirers and acquirees perceive mergers very differently, but acquirer arrogance actually threatens the value of the deal, the success of the integration, and the organization’s profitability.
• If The Cost-Cutting Siren Calls, Growth May Run Aground. Cutting costs through a merger appeals to analysts and investors, and is easier than hitting growth targets – but growth is closely linked to long-term strategic capability. Over-focusing on cost issues may risk loss of the value the merger was intended to create.
• A Neglected Sales Force Undermines Merger Success. Organizations going through a merger often take their eye off the day-to-day business, letting the process of integration distract the sales force, placing customer relationships and revenues in peril.
• Culture Issues Are More Organizational Than National. As important as national culture may be in a global merger, integration problems are more likely to arise from the cultures of the organizations themselves. Competitors develop their cultures deliberately to differentiate themselves; when two of them try to combine, these differences must be addressed.
• Middle Managers: Most Needed, Least Engaged. Middle managers are critically positioned to make integration happen and advance the new organization’s strategic agenda. Yet, with integration focused at the top of the organization and communications focused at the bottom, those in the middle can be overlooked and under-utilized.

Donna Van Alstine is senior vice-president and Canadian practice leader at Right Management Consultants.

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