While most HR leaders tend to be highly competent on people and leadership aspects, they do not exude the same level of confidence when it comes to managing the same topics in post-merger integration scenario. Not just that, HR functions tend to shroud themselves with templates, checklists, and tasks so that they can easily avoid as much analytical work as possible. All these actions give a semblance that HR function is indeed risk averse and has myopic thinking. In fact, due to this perception many business leaders cast them as a simple support function, and thus, never brought “under the tent” as the expression goes. HR leaders are denied from being given a seat at the strategic table.
And this could not be more unfortunate than this.
I have worked with hundreds of HR professionals across the globe. And I find most of them are very adept in people management and leadership skills. They have deep insights about their employees and know the exact organizational levers that can be pushed to gain productivity and motivation, which in turn can easily create a competitive advantage for their company.
So, despite this superlative expertise, why do they struggle with M&A integrations?
The answer is simple. They are not comprehensively trained on various aspects of M&A integration. And many of them, have never attended any M&A training whatsoever. And yet, they are expected to seamlessly execute M&A integration as if they were born with those innate skills.
This is a perfect catch-22 situation.
Because of their human resources skills, they are expected to be fully proficient in handling people aspects in an integration and yet, with their same HR skills they struggle to navigate through an integration. While there are definite requirements of skills to manage people, post-merger or M&A integration is a special case, where there is a need to manage massive number of tasks in a high visibility environment that needs elevated levels of synchronization and collaboration between multiple teams, and the workforce need to be mobilized at a high velocity to support the initiative.
Without the possession of the relevant skills required for an integration, HR practitioners often find themselves in a precarious position where they do not want to be seen as non-competent and yet, they need to deliver on items where they have limited expertise. That is why, to avoid direct confrontation and be exposed of their lack of capability, they often end up hiding behind other benignly valid operational reasons.
On the other side, companies who have acquired these skills and mastered these techniques, are easily able to integrate dozens of companies in quick succession.
So, how does one know if their own HR teams have the right level of competencies or not?
Over the years, we have identified some telltale symptoms based on our observations and the underlying root causes that exemplify this behavior:
- Over focus on templatized and tactical task-based approach: Teams focus on getting tactical tasks upfront that do not need much analysis. These tasks do not have high uncertainties and the outcome is quite predictable. They are easy to monitor and manage and can display tangible progress as these tasks get done. Unfortunately, this gives a false semblance that everything is under control and the teams are progressing well whereas much of the main tasks need analytical work and crucial understanding before decisions can be made. Most companies acquire to gain a competitive advantage and one of the main tools to get that advantage is to align and leverage their workforce and leaders in the right direction. Unfortunately, organizations must go through several discovery sessions, structured analysis and socialization of ideas before these opportunities can be unearthed and specific interventions can be identified that can create these competitive advantages. In other words, by pursuing only the mundane tasks organizations will never be able to create competitive advantage. And without the right training and skilling, the HR teams would continue to fall into this vanity demonstration of progress paradox. Case in point, would be how to cross-sell the products or services of the acquired and the acquiring company. Cross-selling is not just about creating new brochures and conducting a few products training, but it needs a detailed mapping out of the new process and how is it going to be realized. And most importantly, how salesforces will be incentivized to take on this extra work at the cost of their own revenue generation time. This is a notable example which looks great from 30,000 feet view but can get quite complex in the details, and sales managers may lose interest if not managed properly or without a proper and specific bonus scheme.
- Focusing on business-as-usual activities over integration tasks: Nobody is denying the importance of performing the regular operational tasks. However, tasks in integration also need to be done. And delays can quickly run up into thousands of dollars of missed opportunities of value creation from an integration. And yet, most HR people still end up focusing on operational activities. This is primarily due to two main reasons: they do not have a comprehensive understanding of level of engagements required in M&A integration and end-up incorrectly estimating the amount of time and effort that would be required on top of their operational jobs. And secondly, their performance objectives continue to remain tied with operational goals rather than integration objectives. Regrettably, without proper M&A integration training, they are likely to continue to operate like this and overlook excellent opportunities to create high-impact value for their organizations. An example would be an HR team member focusing on fixing a glitch of an employee, masters detail instead of working on a cultural integration activity that will foster collaboration between the teams. It is not about the singular importance of a task but being able to assess and prioritize them relative to their importance in the overall scheme of things.
- Politics: HR professionals are often misunderstood and viewed as political during an M&A integration. Employees often speculate that HR leaders harbor secret missions to oust employees from their jobs. On the other side, business leaders feel that HR leaders are dodging their integration responsibilities under the pretext of some other urgent priorities. They develop this perception of having their own hidden agenda in the entire process. Unfortunately, this optic is cruel and far from truth. The reality is that these HR professionals do not have the relevant skills required for an integration. At the same time, they cannot be seen as incompetent either. Thus, they end up developing an outer shield to protect themselves from being exposed on their lack of expertise and help divert people’s attention to another important topic. This is one of the oldest tricks in the book of politics. In the absence of another option, many HR practitioners end-up pursuing this path to cover their incompetency tracks. It is quite common to see senior HR professionals participating actively in other leadership meetings despite an active integration underway.
- Not championing change management: Change management is a particularly important aspect of post-merger integration and yet, HR folks don’t seem to be visibly championing the need for change management. Change management here refers to managing the transition of an employee from an old state to a new state through a neutral zone. It involves getting rid of old ways of doing things, old habits and transforming their capabilities where they can do new things in a new way. These transformations are strongly hinged on changing people’s behavior. However, one thing people forget is that HR professionals are proficient in managing human resources that involve managing behaviors but change management is a separate discipline. While there are elements of change management that is based on people’s behavior, its approach is far more attuned to a project management approach rather than an HR management process. Without understanding the fundamentals of a project management approach, HR professionals will struggle to lead change management. An example would be an implicit belief that rolling out new policies will be readily accepted and followed by employees. In reality, most employees would flout the adherence till specific interventions address the underlying habits and rituals.
- Not asking for help: Business leaders assume that all people and leadership related matters can be deftly managed by HR professionals. HR professionals also, take it upon themselves to be the bastion of these expertise as well. But when rubber meets the road, issues start coming out of every nook and crevice due to lack of relevant skills and expertise. All integrations have people and leadership related aspects, but their treatment need to go beyond the conventional HR management techniques. Let us look at an example. Laying off an employee is a conventional HR management activity. In operational scenarios, the laying off is usually related to lack of performance and there is a set format to approach it. But redundancies in integration are not necessarily related to performance. It could be that a plant is being shut down, offices being consolidated, salesforces being made redundant, or support functions being disbanded. None of these redundancies may be related to performance at all. As you can see, the science of redundancy may still be the same, but the context and the approach are very different. Unfortunately, it is easier said than done to accept a deficiency in skills. We would request HR professionals across the globe to shun this display of over-confidence and embrace a temperament where they should be able to ask for help. Remember, no HR person has an “S” diamond embossed on their chests and thus, there is no harm to ask for help or additional training where there is a skills gap.
- Struggling to determine scope or depth of an integration: Integration is a complex maneuver that has thousands of tasks that need to be done in a cohesive way. HR leaders often end up getting the lion’s share of activities in a post-merger integration project. However, without proper understanding of tools and technics, they may continue to remain in a state of wilderness while trying to juggle multiple glass balls in the air at the same time. You know exactly, how the story is going to end! And yet, organizations continue to pursue templatized approaches instead of learning about tools and techniques to conduct an integration. Over the years, I have taught M&A integration to hundreds of professionals across the globe. And yet, I find many of them completely devoid of any awareness of industry leading techniques that can make their lives so much easy and help them to run integration projects effectively. Haspeslagh-Jemison model to determine depth of an integration, Greiner’s Growth Model to determine current state of management practices, Edgar Schein’s organizational culture and Cameron-Quinn’s competing value framework are just a few examples of great M&A integration tools that the integration practitioners should be aware of. The irony is that these practitioners are also not using alternative frameworks either but are blindly dependent on checklists or templates.
- Trivializing importance of culture in an organization: Many people struggle to define culture in an appropriate way under a business context. So, it is not surprising to hear that people discuss culture in an abstract way. However, there are several renowned management gurus who have taken this abstract concept and converted them into frameworks that can easily explain and assess organizational cultures. In most integrations, culture plays a key role to bring organizations together. Cultural integration becomes the catalyst that drives collaboration and consolidation of two organizations. Regrettably, many business leaders consider culture as fluff that does not need much attention. It is something that can be easily managed and transformed. After all, it should be as simple as telling the acquired company on the “way we do things here” and ask them to start following the same. These same business leaders disdainfully hand over the responsibility of culture to HR teams. And these hapless HR teams are left to fend for themselves despite lack of skills. To be seen as competent, they end up conducting a couple of cosmetic culture workshops and then go through the process of handing over an employee handbook to the acquired employees. Culture unfortunately, goes much deeper than this veneer layer. What is worth noting is that culture single-handedly destroys billions of dollars of value during an integration. And thus, culture must be firmly addressed in every single integration. Despite glaring examples, organizations still take a flippant approach when it comes to managing culture. Daimler-Chrysler remains a prime example of this.
These are just a few symptoms to show that there is massive underlying problem of skills and competencies. The solution is right in front of our eyes and yet most of us, cannot seem to spot it. The answer lies in developing specialized skills required in an M&A or a post-merger integration that includes a comprehensive understanding of the entire M&A process, tools, techniques, and frameworks. Th e skill development must include creating organization structure, target operating model and marry those strategic objectives that are translated into operational objectives. The solution must include developing a far-reaching understanding of culture, communication, and change management. Teams also must develop appreciation for the importance of integration management office and how to smartly navigate functional depth and their interdependencies. Businesses should stop blindly following templates and checklists, and instead try to learn about the principles that govern the management of an organization if they want to effectively manage an M&A integration.
The total value of the global acquisitions was about $3.9 trillion in 2018. According to industry research, 70-80% integrations fail. And when they fail, they destroy billions of dollars of value. If we were to take the number from 2018 then the failure value is now in trillions.
In most cases, these failures primarily happen due to people, leadership, and cultural issues. With proper skills and insights, these issues can easily be addressed up-front. The irony is that these skills can be developed easily without costing an arm and a leg. The average cost of a decent quality M&A integration is less than a couple of thousand dollars. And yet, myopic approach prevents most organizations from taking this step. Guess what, even if organizations decided to train their entire workforce on techniques of M&A integration, it will still be miniscule compared to the colossal size of the failures that M&A industry observes frequently.
Despite all this wisdom, I still find human beings as an intriguing species.
This article is written by Anirvan Sen.
It is edited and keyword optimized by Blanca Monni.