Why do most M&As fail? Survey after survey finds the same answer, again and again: people and leadership.
Perhaps Forbes put it best by saying ‘Most Mergers Fail Because People Aren't Boxes’. Organizations spend vast amounts of time and money on the finances only for their people to remain hopelessly incompatible.
According to the SHRM, failure is often attributed to various HR-related factors, such as incompatible cultures, management styles, poor motivation, loss of key talent, lack of communication, diminished trust, and uncertainty of long-term goals.
Due to the uncertainty caused by COVID-19, M&As and divestitures are understandably becoming increasingly common again. The second half of 2020 was the highest on record for M&A. Yet if you don’t get the people’s side right, failure is the likely outcome. To be successful, HR must play an integral role, in integrating processes, driving culture, and motivating new employees.
How does HR play an important role in a successful M&A?
A McKinsey survey found that 60% of acquirers expressed regret that they did not dedicate more resources to culture and change management during the integration process. Successful acquirers, meanwhile, dedicated resources to getting the right accountability system and managing change.
McKinsey advises that operational and cultural changes need to be supported by, “clear employee expectations and consequences. This consistency requires building a high-functioning accountability system”. For example, one CEO in their survey determined that promoting diversity was critical to the combined company’s future and started by updating its new values to set clear expectations. In other instances companies choose to build and propagate new capabilities including an enterprise-wide training program that covered skills such as prioritization, driving accountability, structuring project plans, and meeting deadlines.
If the people aspects of a merger are left till last, it may be too late. The messy complexities of business cultures will remain unresolved and eat like cancer into the new organization.
SHRM advises that HR professionals should “play pivotal roles in an acquisition's core due diligence activity”, covering, “information about talent and culture—along with typical assessments of employee benefits plans and liabilities, compensation programs, employment contracts, and policies, legal exposure, and more.” This, they say, can provide insights into the value of a property and its workforce and “decrease the likelihood of unhappy and expensive surprises.”
Why is this often so difficult to achieve? Because people fear change. It takes time and space, empathy and understanding, for people to feel safe in a new environment. They need to understand what is going on at every step and feel ownership of the process.
In a word, this comes down to culture. According to M&A analyst Rebecca Doherty’s influential article How M&A practitioners enable their success, the two biggest integration success factors are “effectively managing cultural differences across organizations and setting synergy targets”. Having a clear vision, understanding the importance, having a plan, sufficient resources, and the right competencies are the necessities for a successful change.
What does this look like when done well?
A famous example is Danaher, the international conglomerate. Since its inception in 1984, it has made several hundred acquisitions, with 44 in the last five years alone, becoming a $22 billion revenue company. The Harvard Business Review notes that observers, as well as Danaher executives, attribute its nearly unbroken record of success to the Danaher Business System, which revolves around what the company calls “the four P’s: people, plan, process, and performance”. It’s no coincidence which P comes first on that list.
Being explicit about what is happening to the employees and what they can expect, acknowledging the specific cultural elements, and being clear about how you are going to support them is key. You then need to adapt your delivery mechanism to fit your audience.
That all sounds great in theory – but
How can this be achieved in practice?
To address this, CorporateLeaders and SD Worx are hosting an intimate and interactive peer-to-peer virtual roundtable discussion for up to 25 HR, payroll, talent, HRIS, and M&A Leaders.
During this virtual meeting, keynote speaker Michael Oggenfuss, Global Head HRIS & Employee Services Human Resources, Worldline who has successfully supported 14 M&As in the past 2 years, and M&A experts from SD Worx who guide companies and teams successfully through integrations will discuss:
Register here to join us for 'DRIVING M&A SUCCESS WITH HR', 9th September, 15:30 -17:00 CET.