A DISSERTATION REPORT

ON

“ROLE OF HR IN MERGERS & ACQUISITION”

SUBMITTED IN PARTIAL FULFILLMENT FOR THE REQUIREMENT

OF

MASTERS OF BUSINESS ADMINISTRATION

(2008-2010)

SUBMITTED TO: SUBMITTEDBY:

CONTROLLER OF EXAMINATION POOJA RAWAT

MDU, ROHTAK. ROLLNO-08MBA134

ITM, GURGAON

INSTITUTE OF TECHNOLOGY & MANAGEMENT, GURGAON.

CERTIFICATE

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Abstract

Mergers and acquisitions (M&As) are increasingly becoming a strategy of choice for

companies attempting to achieve and sustain competitive advantage. However, not all

M&As are a success. In this paper, we examine the three main reasons highlighted in the

literature as major causes of M&A failure (clashing corporate cultures, absence of clear

communication, and employee involvement), and we analyze the role played by the HR

function in addressing them. Also, we discuss the importance of gaining the commitment

and focus of the workforce during the acquisition process through employee involvement.

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DECLARATION

I hereby declare that the Dissertation report on “Role of HR in Mergers and

Acquisition” is original and bonafide work carried out by me under the guidance of Prof.

(Dr.) Vigya Garg , in Partial fulfilment of the requirement for the award of degree in

Masters of Business Administration at Institute of Technology and Management,

Gurgaon affiliated to Maharishi Dayanand University.

I also declare that this project is a result of my sincere efforts.

No part of this project has ever been published or been submitted earlier.

POOJA RAWAT (08MBA134)

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ACKNOWLEDGEMENT

A research study cannot be completed without the guidance, assistance, inspiration and

co- operation from various quarters. The study also bears the imprints of many persons. I

feel pleased to have an opportunity to express our deep and sincere feeling of gratitude

towards those personalities who positively helped to complete our project.

For making this project possible, we would also like to express my thanks and gratitude

towards our respected director, MR GANESAN JAISHELAN(DEEN of the department,

MBA, ITM) and my project guide Prof. Dr. VIGYA GARG ( Faculty, MBA, ITM) for

her kind Co-operation and guidance, without which this project could have never been

completed on time.

I are also grateful to all my colleagues who continuously helped me in my project and for

their kind co-operation and by spend their valuable time in providing me the information

needed.

Pooja Rawat (08MBA134)

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EXECUTIVE SUMMARY

The research project entitled “Role of HR in Mergers & Acquisition” is an attempt to

analyze the relevance and practical application of HR in any M&A deal.

It also aims to throw light on the trends in M&A both in India and world wide. Lastly,

suitable recommendations are suggested based on the study.

The data was collected through secondary sources and the type of research was

EXPLORATORY. Several newspapers, magazines, websites and articles were consulted

for this research. Since, I was given a very limited time; I had to confine my research to

secondary sources of data collection.

In the course of study, it was found that the M&A activity is found to have serious impact

on the performance of the employees during the period of transition. The M&A leads to

stress on the employee, which is caused by the differences in human resource practices,

uncertainty in the environment, cultural differences, and differences in organizational

structure and changes in the managerial styles.

And HR has a pivotal role to play in all the following phases which take place in any

M&A deal. These phases are:

1. Pre-Deal Phase

2. Due Diligence

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3. Integration Planning

4. Implement Merger

5. Evaluate Merger

INTRODUCTION

To put it simply, the term “Merger” refers to the combination of two or more

organizations to form a new company, which often has a new corporate identity.

“Acquisition”, on the other hand, is the purchase of a company by another company.

Besides assessing the risk and potential of the merged entity, it is just as important to

derive synergy from the merger or acquisition so that the company can quickly transit

into the new entity and operate at its maximum efficiency. This is crucial in meeting the

various bigger organizational objectives including growth in market share.

To achieve this, it is essential for HR to play a pivotal role in ensuring the smooth

integration of HR policies and managing employees of differing work cultures all through

the merger and acquisition life cycle. No other event is more difficult, challenging, or

chaotic as a merger and acquisition. Therefore, we need to look at how human resources

professionals can assist in the success of an acquisition.

The Human Side of M&A Activity

               Plenty of attention is paid to the legal, financial, and operational elements of

mergers and acquisitions. But executives who have been through the merger process now

recognize that in today’s economy, the management of the human side of change is the

real key to maximizing the value of a deal. The management of the human side of M&A

activity, however, based upon the failure rates of M&As, appears to be a somewhat

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neglected focus of the top management’s attention. People issues occur at several phases

or stages of M&A activity.

These people related problem are integrated in different stages of M&A, and are dealt

through each phase. Basically M&A has 3 stages model.

HR in Three Stage Model of Mergers and Acquisitions

The literature sources [e.g. Jansen 2000; Haspeslagh/Jemison 1991] most frequently identify

three phases of a merger or an acquisition.

The first phase is the Pre-Merger which includes the planning of the merger and

acquisition. There are many Human Resource issues along with other issues in the first

phase. One of the issues that can be arisen in the pre-merger is to identify the reasons

behind the Merger and Acquisitions. The pre acquisition period involves an assessment

of the cultural and organizational differences, which will include

The organizational cultures,

Role of leaders in the organization,

Life cycle of the organization, and

The management styles. The mergers often prove to be traumatic for the

employees of acquired firms; the impact can range from anger to depression.

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The second stage of integration in an M&A activity is extensive and complex. Whereas

Stage 1 activities set the scene for M&A activity, those in Stage 2 are the ones that make

the activity come to life.

The last phase is the solidification of the new entity. As the new combination takes shape,

it faces issues of readjusting, solidifying and fine-tuning .On the third stage, HR issues

like

Solidifying leadership

Staffing,

Assessing the new strategies and structure,

Assessing the new culture are the main issues  which an HR Manager is likely to

face.

M&A's carry quite a burden for HR. As well as getting its own house in order –

integrating HR programs,

1. Reconciling redundant HR functions

2. Working through two service and technology strategies –

3. It must also support and help other departments through their own individual

transitions. As such, while the integration of the HR functions, its systems and

people programs are integral to a successful merger.

Relation of HR with Merger & Acquisition Success Rate

It might be more accurate to use the term failure rate rather than success rate. Industry

analysts agree that the failure rate of mergers and acquisitions is somewhere between

40% and 80%. This means that 83% of the companies do not ultimately see the returns

that were projected for the merger or acquisition after a 3- to 4-year period.

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Research also suggests that up to 65% of failed mergers and acquisitions are due to

'people issues' that result in poor productivity.

SO WHY THE MARRIAGE FAILS:

The mergers and acquisitions are done to grow faster but it is not sure that the

result emerges the same as it was thought. Some failures can be

Expectations are unrealistic

Hastily constructed strategy, poor planning, unskilled execution

Failure/inability to unify behind a single macro message

Talent is lost or mismanaged

Power and politics are the driving forces, rather than productive objectives

Requires an impossible degree of synergy

Culture clashes between the two entities go unchecked

Transition management fails

The underestimation of transition costs

Defensive motivation

Perhaps of these, culture clashes, gaps, or incompatibility and losses of key talent are

cited the most frequently, although even these become intertwined with other reasons.

(Bianco, 2000; Fairlamb, 2000)

So HR department has to consider some critical factor or issues in M&A, to have a

successful M&A as prerequisite especially for a satisfied and motivated workforce.

HR issues in three Stage Models of Mergers and Acquisitions

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The three stages:  (1) Pre-combination; (2) Combination and integration of the partners;

and (3) Solidification and advancement.

Selected HR Issues in the three Stages of M&A:

Stage 1: Pre-Combination

Identifying reasons for the IM & A

Forming IM & A team/leader

Searching for potential partners

Selecting a partner

Planning for managing the process of the IM and/or A

Planning to learn from the process

 Stage 2-Combination and Integration

Selecting the integration manager

Designing/implementing teams

Creating the new structure/strategies/ leadership

Retaining key employees

Communicating to and involving stakeholders

Deciding on the HR policies and practice

Stage 3: Solidification and Assessment

Solidifying leadership and staffing

Assessing the new culture, new strategies and structures

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Assessing the new HRM policies and practices

Revising as needed

Learning from the process

The strategic contribution of HR as consisting of the “Five P’s”: Philosophy, Policies,

Programs, Practices, and Processes.

Moreover, Merger and Acquisitions success entirely depends on the people who drive the

Business, their ability to Execute, Creativity, and Innovation. It is of utmost importance

to involve HR Professionals in Mergers and Acquisitions discussions as it has an impact

on key people issues has increased the involvement of HR professionals. By doing so

they will achieve a much better outcome and increase the chance that the overall deal is a

total success. Some examples of M&A are Volvo & Ford, Volkswagen & Rolls Royce &

Lamborghini, Pepsico-Pizza Hut, BankCorp of America- Hughes Electronics

OBJECTIVE OF MERGER AND ACQUISITION

When going through M&As organizations usually focus primarily on the financial,

economic and commercial aspects of the deal, and often only as an afterthought on

people. So the immediate objective of an acquisition is self-evidently growth and

expansion of the acquirer's assets, sales and market share. A more fundamental objective

may be the enhancement of shareholders' wealth through acquisitions aimed at accessing

or creating sustainable competitive advantage for the acquirer.

Contradictory reality is, as that people are the greatest asset, but at times just seems to

overlook this mantra in the heat of a deal. Now the HR issues are treated as a key

component of any merger, not on an ad hoc basis as they arise. The objective of M&A is

to manage the people related issues again and again as it arises, thereby keeping a healthy

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working environment with motivated workforce leading to more productivity and high

performing organization.

Secondly, objective is to successfully managing many integration issues through

effective communication. This entails devising a comprehensive communications

strategy and implementing it with care and diligence.

So, from the outset of negotiations, HR managers need to work with senior management

to identify and troubleshoot these potential problems.

Research Methodology

OBJECTIVES OF THE STUDY:

1. To analyze the current Role of HR in merger and acquisition.

2. To enable to understand what are the trends in HR merger and acquisition now in

India.

3. To know the Evolution of the Merger and Acquisition.

4. To analyze the strength and weakness of merger and acquisition.

5. To give recommendations and conclusions based on the study.

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SIGNIFICANCE OF STUDY

With the help of research study we come to know about:-

1. The implication of role of HR in Merger and Acquisition

2. Understand the overview of Merger and Acquisition.

3. Understanding Role of HR in Merger and Acquisition thoroughly

4. The Relevance and practical Application of HR in Merger and Acquisition

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RESEARCH AND SAMPLE DESIGN

TYPE OF RESEARCH:

EXPLORATORY

METHOD OF DATA COLLECTION:

Secondary data collection: large amount of secondary data is available in the

forms of articles, journals, and previously conducted researches on the similar

topics.

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Data collection:

Data collection has been done from secondary sources.

Secondary data: from newspaper, magazines, Internet. For carrying out the

secondary research, further help will be taken from websites, Brochures, journals,

consumer forums & blogs.

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REVIEW OF LITERATURE

THE MERGER AND ACQUISITION LIFE CYCLE

There are five key phases to the life cycle of mergers and acquisitions. These can be

identified as follows

1. THE ROLE OF HR IN MERGERS &ACQUISITIONS

It includes the research work conducted by various sources and institutes

independently in different time periods.

When to Involve HR

1. (a) The success rate of mergers and acquisitions is dismal. Research by Gaplin and

Hendron has shown that during mergers and acquisitions:

• Only 30% of companies acquired their return on the cost of capital

• Close to 50% of executives leave in the first year

• 70% do not realize their projected synergies

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There are many reasons that can be attributed to these results. Several of them revolve

around the people and cultural issues.

1. (b) The Bureau of Business Research at the American International College

(1996) reported that the ten pitfalls which had negative impact on successful mergers and

acquisitions were:

1. Incompatible cultures

2. Inability to effectively implement change

3. Non-existent or overestimated synergies

4. A clash in management styles

5. Excessive premium for acquisition

6. Unhealthy acquisition target

7. Requirement to spin off or liquidate too much

8. Incompatible marketing systems

1. (c) The Economist (1999) reported: “Study after study of past merger waves has

shown that two of every three deals have not worked. Look behind any disastrous deal

and the same word keeps popping up-culture. Culture permeates a company and

differences can poison any collaboration.”

1. (d) A survey conducted by Grant Thornton Business Owners Council across 750

businesses owners and senior executives in the USA found that some of the major

contributing factors for the failure of mergers and acquisitions included:

• A poor integration strategy

• A loss of key personnel

• The lack of a compelling strategic rationale

• Inadequate communications

1. (e) Raymond Stone comments:

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“The clash between corporate cultures is a major cause of merger failure. For example, it

is estimated more than half of all merged companies in the United States fail to create

value for shareholders because management underestimates ‘the complexity of corporate

marriage’. Furthermore, these complexities are intensified when organizations from

different countries combine. By neglecting the human dimension, managers can destroy

the value of the acquired or merged organization. HR managers, therefore need to take a

pro-active role in educating line managers about the people problems involved in mergers

and acquisitions.”

1. (f) CEO Magazine reported:

“75% of Mergers and Acquisitions are disappointing or outright failures. 50% experience

a decline in productivity in the first four to eight months. 47% of senior executives in

acquired firms leave in the first year, 75% in the first 3 years.”

1. (g). I A survey conducted by the SHRM and Towers Perrin of over 440 HR

executives worldwide showed that there was a considerable gap between the expected

and achieved synergies of mergers and acquisitions:

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From this survey it is clear that the key objectives that organization are striving for in

mergers and acquisitions “growth in market share” and “becoming a leader in

industry consolidation”

The research shows that less than half the participants were able to achieve those

objectives. For a successful merger and acquisition it is essential that HR play a pivotal

role through all the five phases of the process.

1. (g). II The survey conducted by SHRM and Towers Perrin also looked at the most

significant obstacles to successful mergers and acquisitions. The results can be

summarized as follows

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A review of these key obstacles highlights the importance of the role of the HR

professional in mergers and acquisitions. It also surfaces the range of areas where HR

professionals can play a key role. These include:

• Maximizing productivity

• Developing the organizational culture

• Retention of key talent

• Cultivating the style of the management team

• Acting as a change agent

• Communicating the business objectives

Typically, experience has shown that HR has been involved too little or too late resulting

as a contributing factor to the 70% failure rate in realizing projected synergies.

1. (g). III The results of the research conducted by SHRM and Towers Perrin

demonstrate in particular the lack of involvement by HR professionals in the first two

phases of the merger and acquisition life cycle.

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The obvious conclusion from the results represented in the above graph is that successful

companies have benefited from a greater degree of HR involvement than unsuccessful

companies.

1. (h) With specific reference to the Asia Pacific context, Watson Wyatt in their survey

across 190 companies compared the timing and level of HR involvement between

companies in the Asia Pacific and those in the United States.

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The results showed that in the Asia Pacific, there was little involvement of HR in the

early stages of the Merger and Acquisition life cycle and may account for the need for

extensive involvement in the later stages.

So the differing results between Asia Pacific and the United States in the earlier stages

may also be partially accounted for the greater need for due diligence requirements on

accrued benefit liabilities (including retirement, redundancy, health, annual leave, long

service leave) and termination provisions in the more developed United States

environment.

2. ROLE OF HR PHASE-WISE

This data is takes from cite-hr.com, it was assigned as a response to a query

regarding role of HR in M&A. by Prof. Mrs. Pratigya Jain

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2.1 The Role Of HR In The Pre Deal Phase

Typically in Asia, there is little involvement of HR professionals in the first phase of

mergers and acquisitions. However, there is a critical need for HR to be involved in this

phase. One of the first critical areas that HR can be involved is in assessing the potential

compatibility of cultures. This could involve reviewing an array of things such as

leadership style, mission, vision and values of the organization, team strength,

performance and reward management systems, customer focus and Organizational

capabilities.

One of the Challenges that HR faces is obtaining this information in an environment

where the organization may not want to alert other parties of their intent to acquire or

merge. As such, much of this information is usually obtained on an informal level or

through the use of third parties.

2.2 The Role Of HR In The Due Diligence Phase

During this phase, the organization determines the associated risks and the soundness of

the deal. It is at this stage that the organization determines whether it will purchase the

entity and its correct value. Many of the HR activities identified in the pre deal phase are

continued with greater detail in the due diligence phase to ascertain the correctness of

the perceptions obtained in phase one. It is during the due diligence phase that potential

problems and risks are often identified.

This can include a wide range of activities such as:

Recognising that there is more to due diligence that the bottom line issues such as

benefits and employee pay

Looking at the impact of learning and development

Advising on organisation design and development and

Recruitment and retention in the integration process

Identifying any ownership issues regarding intellectual property

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In Summary, one of the most critical roles for HR during the due diligence process is to

identify any contractual obligations, benefit entitlements and resource savings that may

impact on the value of the deal.

2.3 The Role Of HR During The Integration Planning

It is during this phase when the HR professionals’ skills in Project Management and

Change Management are a critical asset to the life cycle of the merger or acquisition.

HR is usually involved in a wide range of planning issues such as:

Determining the culture/vision of the new company

Contracts of employment

Performance management issues

Looking at leadership commitment and talent

Confirming people's expectations - retention, cost and cultural fit

Looking at techniques that work well in both operations and selecting the most

effective ones that will work across the board

The Details And Planning that are put into this phase is a critical factor in the success of

the implementation of the acquisition. For a successful implementation, quick, decisive

and focused action is needed.

2.4 The Role Of HR During The Implementation Phase

One of the key roles for HR professionals during the implementation phase is the Co-

ordination of Communications to Staff. It is critical that the new organization

maximize productivity and focus on client and shareholder satisfaction as soon as

possible. HR can play a pivotal role in maximizing employee engagement through

effective and timely communications to staff. Essentially through any change process,

employees want to know “what is in it for me?” (WIFM). This could include such issues

as, Who will I report to?

What are my rights and benefits if terminated?

What have my clients been told?

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What will be my future role and responsibilities?

Who can I talk to for help and information? The questions raised are extensive!

.During the integration planning phase, it is advisable to develop a comprehensive Q&A

sheet that identifies and responds to likely staff issues. One benefit of providing this

information in a written format is that it helps ensure reliability and consistency of the

message across the group in times of change and uncertainty.

Documenting communications is important for ensuring staff receives a consistent

message during such times of change. There are several other activities typically

conducted by HR professionals during the implementation phase. These include:

Alignment of HR policies and practices

Advising senior management on people issues

Reward schemes

Education

Recruitment

Employee retention through the integration phase is often cited as a key role for HR

professionals.

A study conducted by Right Management Consultants that included interviewing a

number of executives involved with the people side of mergers and acquisitions produced

six important principles for making the transaction more successful:

1. Decide how critical employee retention really is – this will vary considerably

depending on the nature of the business.

2. Look for talent in unexpected places – some of your key resources may not be top

management.

3. Recognize that nothing is forever – some retention strategies are only appropriate for

the short-term transition phase.

4. Don’t be too desperate to retain any one person – for key management, short term

contracts with severance bonuses may be all that is needed for the integration phase.

5. Retention bonuses often backfire – sometimes good people leave because they are not

part of such a scheme.

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6. Be open to creative approaches that earn trust – its not just all about cash bonuses.

Consider options such as career management and new skills development.

The critical role for HR professionals during the implementation phase is to help ensure

the organization maximizes employee engagement to assist in achieving the initial

objectives of the merger or acquisition through a successful integration.

2.5 The Role Of HR In Evaluating The Merger

An important phase in the merger and acquisition cycle is the post merger phase when a

review of the achievements of the merger can be assessed against the original or revised

objectives.

It is important for the management team to review the progress and success of the

implementation phase.

Benefit programmes have not been harmonized,

Different performance management systems are still operating,

Economies of scale have not been achieved through re-engineering and

repositioning of the operations and

A unified sense of purpose, mission, vision and direction have not been

obtained.

In addition to comparing the achievements of the new organization against the

original objectives, often HR professionals will use a range of tools such as

cultural surveys to benchmark and monitor the success of establishing the new

organizational culture. In maximizing the engagement of the human capital in the

new organization, it is important that this review process is conducted and

appropriate remedial action is identified and taken to ensure the successful

outcome of the integration.

3. ROLE OF HUMAN RESOURCES IN MERGERS &

ACQUISITIONS

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This article reveals itself with the much hyped case of Jet- Sahara merger and the

retrenchment and trauma faced by the Human Resource, written by Prof. Harshada

Mulay. Later defining the initiative, guiding principles and factor for HR in case of

M&A

Mergers in India have moved to centre stage today, with the recent action in the air. The

Competition Commission of India has announced that it will introduce measures to

critically scrutinize all mergers. The Union Aviation Minister has had to come out with a

statement that the recent Jet-Sahara merger will not create a monopolistic monster in the

sky.

The Jet brass has indicated that the Sahara folks will have to shape up or ship out. The

airline has about 5,000 employees across the country, against Jet's 7,000. Even the Sahara

pilots, much in demand because of a talent crisis in the sector, are getting together to

ensure that their seniority and pay scales are not affected in the new entity.

Why were the pilots worried? They could walk out any day and get another job. Very

probably they will get a handsome raise to boot. The reason is that any merger or take-

over creates uncertainty. Air Sahara has only around 200 pilots. True, the Sahara Group

has promised to absorb the unwanted in some of their other companies. "But the very fact

that you are unwanted can be traumatic," said Mumbai-based HR consultant Shashi Rao.

Why such a woeful track record? HR consultants say people in charge of acquiring

another company often forget that mergers are not just about balance sheets, cash flows

or marketing synergies; they are about people making the synergies real.

Completion of the acquisition and integration--operationally and culturally--of the two

companies have required human resources to play a major role. The work is still going

on: Although most of the integration plan has been implemented, the human side of the

integration continues to evolve.

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3.1 THE KEY HR INITIATIVES HAVE INCLUDED

1. Development of preliminary organizational designs and identification of the top three

levels of management

2. Assessment of critical players and deployment of appropriate resources in the new

company

3. Retention of key people and separation of redundant staff

4. Development of a total rewards strategy for the combined companies

5. Communications strategy development and implementation

6. Integration of payroll benefits and HR-IS

7. An ability to do all of the above with speed.

The upheaval associated with any merger or acquisition is a prime opportunity for HR to

demonstrate its knowledge and skill in the management of human capital. HR is an

intrinsic part of the integration team in an M&A because of its ability to evaluate the

compatibility of corporate cultures and different options for combining enterprises. HR

must also be the trusted source of information for employees about what the M&A means

for them.

3.2 THE GUIDING PRINCIPLES

* Take definitive action and make decisions quickly--the secret for holding onto good

people.

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* Be candid with employees, and treat them with respect. Let them know that the

combined entity will be a more valuable organization.

* Whenever possible, use ownership of the company as represented by stock options and

stock grants to get everyone pulling in the same direction.

* Be honest about the people decisions that must be made.

* Treat those leaving with the same respect and attention as those staying.

Rather than take a risk-averse, wait-and-see attitude that can lead quickly to irrelevance,

HR executives should be integral to all phases of due diligence, to easing the transition,

and to focusing employees on the creation of shareholder value as soon as possible.

Taking a wait-and-see attitude will lead to an irrelevant role for HR. Instead, the role

must be orchestrated so that its value becomes integral to the deal.

Many companies report that their mergers are successful but admit the end results aren't

as successful as they could have been. Recent studies place the success rate of merged

companies at 30 to 60 percent, depending on what criteria you measure. No matter how

flawless a deal seems on paper, the results are often disappointing. Most merged

organizations lose 1 to 10 percent of their market value in the first year after the merger .

There's a lot to learn about

1. managing the transition period,

2. optimizing short-term performance,

3. keeping the highest percent of talent, and

4. integrating processes and systems.

Companies that don't address those issues may suffer a loss of profitability, top

talent, and confidence in leadership decisions. Individually and collectively, to ensure

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that the management talent required to define the future of the new company is there

to steer the chosen course.

3.3 DUE DILIGENCE: Beginning at the start of the process, HR must orchestrate its

role in due diligence. Due diligence is more than a financial evaluation. It's essential to

assess the valued human assets that never show up on a balance sheet, in order to

determine the true value of the deal and its likelihood of success. Each key individual

should be assessed against a set of clearly defined competencies that are aligned to the

needs of the new group. The key areas of HR due diligence:

Culture

Employee demographics and competency analysis

Key talent analysis

Benefit and compensation structure and how it compares with that of the

parent company

Any legal issues relating to outstanding employee litigation, workers'

compensation, and, where applicable, union contracts and issues.

3.4 CULTURE COMPATIBILITY: By understanding the similarities and differences

between the two companies early in the game, it is possible to avoid a divorce before the

marriage vows are taken. Should incompatibility be too great, it may even be wise to call

off the wedding.

To understand the cultures involved, HR has to look at the history of each company, its

reputation in the industry, and its products and services. It is important to identify cultural

areas of dissonance so that people can dispel misconceptions and begin creating a culture

that's right for the new organization. That's often left until after the final papers are

signed, which is risky because culture mismatches can be the Achilles' heel of many

deals.

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How do we identify cultural differences and similarities and learn to leverage them?

Often, the most seemingly inconsequential programs and policies have great symbolic

impact. Practices regarding casual dress, attitudes about long hours, and how offices

are apportioned are deeply ingrained and must be dealt with. One can't consider culture

compatibility without touching on the different views that the acquirer and the acquired

have about the new company.

3.5 INTEGRATION PLANNING: The integration effort must be led by a full-time

dedicated team. There should be an integration project manager free from any routine

responsibilities, whose sole job is to manage the overall plan. The integration manager

needs a special set of competencies (including project management), broad experience in

the parent business, and specific functional expertise relevant to the new business. He or

she should be willing to make tough decisions quickly, handle conflict, and work well

across functions and management levels. Skill as a communicator is essential. Pick the

best people, not just the available people. Integration leadership should be invested in the

continued development of the new organization.

3.6 COMMUNICATION: Two-way communication always helps comprehension. All

avenues should be used: written, one-on-one meetings, and small- and large-group

meetings. People need a chance to probe, discuss, ask questions, and arrive at a personal

level of understanding that they can't get from a piece of paper. The overriding question

is, "How does this affect me?" Accessibility to managers, officers, and directors is critical

to satisfying employees' hunger for information.

During our acquisition, we developed an excellent tool, Rumor Buster, which was

produced and distributed weekly to counteract rumors.

The goal of communications should be not only to inform, but also to engage employees'

hearts and minds. By presenting a clear vision of the future and gaining commitment to it,

the new company begins to build the loyalty that's crucial to survival.

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In the seven-step process, we were careful to avoid statements that could be dismissed

immediately as propaganda--such as, "We're not going to change anything." "We respect

your autonomy." And "We want to get to know everyone. Don't worry, there's plenty of

opportunity for each of you." Statements like those are remembered, and nothing hurts

the solidarity of the new company more than communication that is later contradicted.

3.7 THE SYNERGIES: There are two kinds of synergies that companies seek through a

merger or acquisition: growth and economies of scale.

3.7.1 Growth- The role of HR is to identify key human assets in the target company, set

up retention arrangements to keep critical talent, and create development plans for people

to prepare them to achieve the anticipated corporate growth. Other issues needing

attention to maximize the growth synergy are reward and recognition programs, team

development, and integration of benefit and compensation programs--ensuring they are

competitive to attract and retain desirable employees.

Ultimately, it involves capturing the tacit knowledge and informal networks that enable

an organization to get things done.

3.7.2 Economies of scale- That's often a euphemism for firing people. But to achieve

synergies, there must be an analysis of what the end-game organization will look like and

which positions are truly.

3.7.3 Dealing with Redundancies: No doubt, with an M&A, not all staff will be able to

or want to stay in the new organisation. Managers who showed "softer" skills work best

in achieving trust and boosting morale in periods of transition and downsizing. These

"softer" skills include:

Honest and proactive communication

Good listening skills

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Sensitivity to employee needs

An ability to illustrate the need for change despite the pain it may cause to some

An eagerness to offer advice example job swap, new career path etc.

Because people are anxious to know their futures as soon as possible at the start of the

integration process, we created a definitive plan with specific dates and a promise that

each person would be spoken to within week 1 and everyone would know their

alternatives for the future within 30 days.

3.8 RETAINING KEY TALENT: There is no one way to retain people during a merger

or acquisition. You can make offers to certain people and if they accept and want to stay,

that's fine, If they don't, that may also be fine. But when you're talking about key people,

the story changes. By the way, "key people" doesn't always mean top executives.

The next question: How long do you need them? Some talent may be needed only

during the transition period, after which their responsibilities can be handed off. Others

may be needed for much longer. Each person must be considered, and a plan must be put

together for that person. The kind of agreement that's drawn up and how far it goes to

keep key talent will differ from organization to organization.

The new structure of the merged companies may be different, and certain jobs may not

exist or be available because incumbents are staying, but there is wisdom in keeping the

talent in the top 10 percent of the population, Talented people tend to welcome the

challenges of a new role, and they enjoy career growth and added responsibility.

3.9 BUYER'S REMORSE: Once the thrill of the deal is over and the reality sinks in, the

mood may change from exhilaration to remorse as the workload grows and problems

arise. People can be confused and fatigued

Mergers and acquisitions don't follow a carefully laid-out linear progression. As much as

we might desire a logical, well-ordered approach, when two groups combine, the process

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takes on a life of its own. Initial plans and assumptions have to be adjusted, and focus can

be lost as critical and immediate problems rear their ugly heads. Executives are often

pulled away to deal with the next business issue, reducing their visibility and giving the

impression they're no longer concerned about the merger.

The good news is that people can tolerate a degree of uncertainty in their responsibilities

if they believe the business direction is clear and the chances of long-term success are

good.

4. KNOTTED FOREVER

It’s an Journal taken from internet named Knotted forever…By Amit Pande &

Sandeep K Krishnan provided an analysis of M&A with cases, practical problems faced

by merging organization in past. Firstly it tries to define an ideal meager as the newly

created entity pools the best features of the two merging organizations. And emphasis

that a well planned process built on the foundations of an open, honest and consistent

communication strategy can pave the way for a ideal M&A. Mergers and acquisitions

have become a common phenomenon in recent times.

By taking reference of a merger of the organisation size like HP-Compaq which has

workforce across the globe. It tries to bring out the importance of HR as mostly the

merging entities give a great deal of importance to financial matters and the outcomes,

HR issues are the most neglected ones. Ironically studies show that most of the mergers

fail to bring out the desired outcomes due to people related issues. The uncertainty

brought out by poorly managed HR issues in mergers and acquisitions have been the

major reason for these failures.

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The human resource system issues that become important in M&A activity are human

resource planning, compensation selection and turnover, performance appraisal system,

employee development and employee relations.

M&A activity presents a different set of challenge for the human resource managers in

both acquiring and acquired organizations. The M&A activity is found to have serious

impact on the performance of the employees during the period of transition. The M&A

leads to stress on the employee, who is caused by

1. The differences in human resource practices,

2. Uncertainty in the environment,

3. Cultural differences, and

4. Differences in organizational structure and

5. Changes in the managerial styles.

For example the compensation issues may also involve legal angle. Two cases in the

Indian context are important which underline the importance of legal issues related to

compensation in M&A activity.

4.1 In the First Case involving Hindustan Lever Limited acquiring TOMCO, the

employees in TOMCO enjoyed better terms and services compared to the HLL

employees. The HLL employees argued that if TOMCO employees are allowed to work

on their original terms and conditions, two classes of employees will come in existence.

Since both the set of employees now belong to same firm, a case of discrimination will

arise against the employees of HLL. However the court supported TOMCO employees in

the process.

4.2 In the Second Case involves merger of Glaxo and Wellcome-Burroughs who

decided to merge in 1996. The Indian arms however couldn’t merge in the last seven

years because of high pay differential between workers of Glaxo and Wellcome in India.

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The workers of Wellcome were offered a one time compensation of Rs. 2 lakhs in 1998,

which they refused. Further the VRS scheme launched by the firm evoked very tepid

response.

Hence the differences in compensation structure and performance appraisal systems also

need to be rectified so as to bring equity in the human resource systems and to treat

employees at the equal level.

4.3 HR takes control

• Train managers on the nature of change

• Technical retraining

• Family assistance programs

• Stress reduction program

• Meeting between the counter parts

• Orientation programs

• Explaining new roles

• Helping people who lost jobs

• Post merger team building

• Anonymous feedback helpline for employees

4.4 Acquisition strategy of GE Capital

The GE Capital uses a successful model called “Pathfinder” for acquiring firms. The

model disintegrates the process of M&A into four categories which are further divided

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into subcategories. The four stages incorporate some of the best practices for optimum

results.

The pre-acquisition phase of the model involves due diligence, negotiations and closing

of deals. This involves the cultural assessments, devising communication strategies and

evaluation of strengths and weaknesses of the business leaders. An integration manager is

also chosen at this stage.

The second phase is the foundation building. At this phase the integration plan is

prepared. A team of executives from the GE Capital and the acquiring company is

formed. Also a 100 day communication strategy is evolved and the senior management

involvement and support is made clear. The needed resources are pooled and

accountability is ensured.

The third is the integration phase. Here the actual implementation and correction

measures are taken. The processes like assessing the work flow, assignment of roles etc

are done at this stage. This stage also involves continuous feedbacks and making

necessary corrections in the implementation.

The last phase involves assimilation process where integration efforts are reassessed. This

stage involves long term adjustment and looking for avenues for improving the

integration. This is also the period when the organization actual starts reaping the benefits

of the acquisition. The model is dynamic in the sense that company constantly improves

it through internal discussions between the teams that share their experiences, effective

tools and refine best practices.

4.6 Acquisition strategy of Cisco

The acquisition strategy of Cisco is an excellent example of how thorough planning can

help in successful acquisitions. After experiencing some failures in acquiring companies,

Cisco devised a three step process of acquisition. This involved, analyzing the benefits of

acquiring, understanding how the two organizations will fit together – how the employees

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from the organization can match with Cisco culture and then the integration process. In

the evaluation process, Cisco looked whether there is compatibility in terms of long term

goals of the organization, work culture, geographical proximity etc. For example Cisco

believes in an organizational culture which is risk taking and adventurous. If this is

lacking in the working style of the target company, Cisco is not convinced about the

acquisition. No forced acquisitions are done and the critical element is in convincing the

various stakeholders of the target company about the future benefits. The company insists

on no layoffs and job security is guaranteed to all the employees of the acquired

company.

The acquisition team of Cisco evaluates the working style of the management of the

target company, the caliber of the employees, the technology systems and the relationship

style with the employees. Once the acquisition team is convinced, an integration strategy

is rolled out. A top level integration team visits the target company and gives clear cut

information regarding Cisco and the future roles of the employees of the acquired firm.

After the acquisition, employees of the acquired firm are given 30 days orientation

training to fit into the new organizational environment. The planned process of

communication and integration has resulted in high rate of success in acquisitions for

Cisco

5. THE KEY ROLES OF THE HUMAN RESOURCE

PROFESSIONAL IN THE NEW ECONOMY

5.1 The New Economy

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We work in an economy that is poised for merger and acquisition activity. Aggressive

competition, rapid change, the impact of technology, globalization, legislative change,

consumerism and increasing workforce mobility drive the new economy.

To operate effectively in such a dynamic environment, it is essential for organizations to

harness their greatest asset – their people. Organizations need people who can adapt,

respond, anticipate and deliver, to meet client expectations. Effective organizations seek

to maximize the efficiency of their human resources by ensuring that they are well

managed and developed.

5.2 Maximizing Human Capital

The term “human capital” has gained increasing popularity as a way to describe the

people working in organizations.

Jac Fitz-enz in his book The ROI of Human Capital describes “human capital” as a

combination of factors such as:

• The traits one brings to the job – intelligence, energy, a generally positive attitude,

reliability and commitment.

• One’s ability to learn – aptitude, imagination, creativity, and what is often called “street

smarts” and savvy (or how to get things done).

• One’s motivation to share information and knowledge – team spirit and goal

orientation.

Fitz-enz goes on to describe people as the “profit lever” of the new economy and that the

organization’s passive resources “require human application to generate value”.

5.3 The Roles Of HR Professionals

5.3.1 Dave Ulrich (1997) identified four key roles for the future HR manager. These

roles can be summarized as:

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•Responsibility for improving productivity through assisting in performance management

• Responsibility for being a functional expert in the administrative function

• Responsibility for being a facilitator of cultural change and

• Responsibility for being a business partner through the development of a HRM strategy.

The roles are multi-dimensional and involve a combination of both short and long term

horizons, administrative and strategic duties as well as a focus on both people and

processes. They can be represented as such:

5.3.2 Dave Ulrich (1997) describes HR champions as those who:

• turn strategic statements into organizational actions;

• meet targets and needs – both of the organization, the customers and the employees;

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• align HR plans to organizational actions; and

• identify and improve capabilities for future success.

Whilst many HR professionals have identified the need to shift their focus from

satisfying administrative requirements to becoming a strategic partner of the

organization, the question remains as to how successful they have been in achieving this

shift. There has been a growing recognition that HR professionals of forward-looking

organizations will be required to act as business leaders. As business partners and

facilitators, HR professionals are expected to share, plan, promote and manage; as

business leaders, they are expected to lead, direct, thrive on chaos and respond to real-

time issues. This is a critical role to play through all the phases of a merger or acquisition.

6. HR – An orchestrator in Mergers and Acquisitions

“The correct spelling of M&A begins with HR” – that’s what Jeffrey A. Schmidt had to

say about the role of HR in mergers and acquisitions. How important is HR while

considering and carrying out M&A opportunities? Unfortunately, we are still not

in era of the Matrix or Skynet 1.0 (The Terminator fame) where the companies can be run

by intelligent systems. Until then we will have to bank upon human capital to carry out

various operations . This makes the HR an indispensable part of company’s activities

and M&A cannot be an exception here. All those who say that HR’s role in mergers and

acquisitions begins when the deal is inked, surely need some introspection. The earlier

HR is involved in the process, higher are the chances of the M&A being a success. If the

HR aspect is not handled properly, no matter how precise the M&A agents are in their

calculations, the deal can never prove to be a success, when one look at the causal

analysis of the failure trends of the M&A deals in Europe over the past two years. It has

been found that of the 40 European companies involved in such deals in the last 2 years,

83% failed to meet their key transition goals and the majority cited ‘human capital

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challenges’ as the most formidable challenge. The findings of Hay Group suggest that

just 9% of deals are fully successful in achieving their objectives.

(http://www.jsbonline.com/public-events/conference/69/the-role-of-hr-in-mergers-and-

acquisitions/introduction/ : Date Accessed:29-Oct-09)

Hence, it is amply clear as to what is amiss in all the M&A deals that fail – the role of

HR, what else!! So, here’s how HR can don different hats in different stages of M&A and

contribute to the making of a successful M&A deal

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The HR has to quickly take control in these cases and educate managers and

employees. To manage issues like stress, low morale and productivity, the focus should

promptly change from change management to management of employee issues. Hence, it

should facilitate transition teams that are averse to decision making based on

personal agenda and politics. Development of newly formed teams, countering problems

arising due to interpersonal conflicts, unclear demarcation of team boundaries as well as

roles and responsibilities ought to be another thrust area of HR. A formal process to

develop newly formed teams, review of the process and help in launching new teams

through consultation should be the forte of HR during M&As.

HR’s key role in any M&A is the reinforcement of the new culture . It needs to

assist the management in preserving the best aspects of the organization. What the HR

can do is:

- Find out through surveys what cultural values are valued and which of them should be

preserved

- Enlist all of them and request feedback from each management level

- Provide the management with development tools and ideas to implement the result

of the surveys and feedbacks

- Finally, it can conduct a survey of all levels of management about 3 months after the

deal is through in order to assess the progress towards the new culture.

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6. Role of HR in M&A – Stage Wise Involvement

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7. The Impact of Culture on Mergers & Acquisitions

This article originally appeared in CMA Management, March 2001, by

Gene Gitelson, John W. Bing, Ed.D., and Lionel Laroche, Ph.D., P.E. It’s a research

based on survey conducted to test the effect of cultural difference in M&A

.

According to a KPMG study, "83% of all mergers and acquisitions (M&As) failed to

produce any benefit for the shareholders and over half actually destroyed value".

Interviews of over 100 senior executives involved in these 700 deals over a two-year

period revealed that the overwhelming cause for failure "is the people and the cultural

differences". Difficulties encountered in M&As are amplified in cross-cultural situations,

when the companies involved are from two or more different countries.

Seven Pitfalls on the Path to Merger Success

Merger success is possible; however, being part of the 17% that succeeds, rather than the

83% that does not deliver, requires more than insight. Merger success is based on

acceleration, concentration and creating a critical mass for operational change

(adaptation)..

The seven pitfalls represent the critical and vulnerable areas of the M&A transaction.

In the case of international mergers and acquisitions, the complexity of these processes is

often compounded by the difference in national cultures. People living and working in

different countries react to the same situations or events in very different manners.

Therefore, a company involved in an international merger or acquisition needs to

consider these differences right from the design stage if it is to succeed.

PITFALL 1: PREOCCUPATION

In countries where people identify largely with groups, people tend to look for support

within their group. In France and Italy, people caught in the midst of a merger or

acquisition often turn to unions. If unions cannot provide answers because they have been

excluded from the negotiation process, they are likely to go on strike. These strikes may

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do much more damage to the organization than comparable Canadian strikes; for

example, the strike by French railroad and subway workers in December 1995 resulted in

the demise of the Juppé government.

What is less apparent is the pervasive loss of productivity of those who remain.

The strategy: Acceleration. Speed the integration to reduce the uncertainty and anxiety.

Delayed decisions to "ease the pain" only magnify and sustain the pain and prevent the

company, the individuals and /or the groups from getting on with the work and their

lives. In the case of international M&A's, ensure that both individual and collective

concerns are addressed.

Pitfall 2: List-making

In the face of overpowering uncertainty and rising fears of insecurity, it will happen. As

soon as the merger is announced and the first calls to action proclaimed, the reality sinks

in. The "list" is overwhelming. Personal and departmental needs drive the allocation of

resources. Quickly, as the days build, there is a widening disconnect between the

financial and market-based goals of the merger and real-time allocation of effort.

Tolerance for uncertainty varies widely around the world and this variation can play

havoc in international M&As. For example, Mexicans tend to require more structure and

definition of their role and responsibilities than do Canadians. When a Canadian

corporation acquires a Mexican company, its Mexican employees are often looking for

information and structure that is not forthcoming, because their new Canadian managers

deem it unnecessary. The Mexican organization often grinds to a halt, since Mexican

employees are unlikely to go and ask for the information they need, since this may be

viewed in Mexico as questioning management's authority.

The strategy: Concentration. During the first 90 days, focus and get everyone to focus

on the 20% of the goals that yield 80% of the economic value. Dealing with uncertainty

explicitly is critical to the success of M&As.

In the case of international M&As, the economic value of a foreign organization may not

be where its Canadian partners expect it. For example, a Canadian company acquiring a

company operating in a country where the government controls much of the economy

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may find that the value of its new acquisition lies more in the personal ties between its

managers and high level government officials than in its quality of service.

Pitfall 3: Organizational Proliferation

In Canadian organizations, many task forces, committees and integration teams are

created to handle all the lists and to plan new lists. Integration structures and transition

teams designed to be all-inclusive and to represent a sign of "new partnership" will weigh

heavily on an organization seeking to keep its eye on its customers and the market..

In the case of international M&As, this issue is compounded by the fact that

organizational change is brought into companies in different ways in different countries.

For example, in countries where the sense of hierarchy is much stronger than in Canada

(like France and Mexico), change is brought about from the top and employees at all

levels expect new directions from their managers. This may paralyze cross-cultural

M&As, since top Canadian managers expect input from these teams and committees,

while French members of these committees and teams expect direction from their

managers.

The strategy: Accelerate, concentrate and adapt. Form small, agile, quick-acting

teams, including people from both sides of the M&A, with a clear mission and

empowered integration team managers with direct access to senior management and to

their support. Transitions do not need to be demonstrations of democracy in action.

Clear leadership and strong support is essential to these teams; without it, they often

break down into sub-teams (one sub-team for each side of the M&A). This is particularly

common in the international case, since language and cultural differences create

significant communication issues.

Pitfall 4: Infrequent and irrelevant communication

Fear and a lack of all the answers deters top management from providing the information

that customers, shareholders and employees need to redirect their action to the value-

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added of the deal. Rumor fills mystery and vacuums. When there is communication, it

often lacks information and substance that explains and supports stakeholders' interests.

In many international M&As, the working languages of the two organizations involved

are not the same. Communication can break down even when the employees of the

foreign M&A target speak English. Consider the case of a Norwegian - American joint

venture. Because Norwegians tend to be more relationship-oriented while Americans

tend to focus on tasks, the parties almost came to blows over when and how to bring the

discussions to a conclusion. The Norwegians complained that they had not built up

enough trust to negotiate final details and needed more time. The Americans responded

that they could not waste valuable time on further meetings and that the matter should be

settled by the legal team. Tension decreased when the teams realized that their goals were

the same but their ways of achieving them were quite different; a deal was eventually

struck.

The strategy: Accelerate, concentrate and adapt. Frequent communication, repeated at

least 7 times through multiple avenues - print, voice mail, e-mail, meetings, and video. A

recent PricewaterhouseCoopers survey of 124 mergers indicates that those firms that

implemented effective communications strategies showed better results in customer

focus, employee commitment and productivity than those firms that had a delayed

communication strategy.

In the international case, communication often requires translation as well as adaptation.

Indeed, the best way to make a presentation and to reach an audience differs from country

to country 1. The communication strategy needs to take communication style preferences

into account, as in the Norwegian - American example mentioned above.

Pitfall 5: Triangulation

Without clear lines of authority and clear understanding of where they fit in, employees

and managers are caught in a web of conflicting objectives and old loyalties.

The tolerance for "fuzzy", temporary organizational charts and decision-making

processes depends on the countries involved in the merger or acquisition. For example In

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hierarchical countries, like the Philippines, both organizational chart and chain of

command need to be clearly defined, more clearly than in Canada. If employees do not

understand them, paralysis often results. A Filipino employee reporting to two managers,

as in a matrix organization, will likely be quickly overwhelmed. He / she interprets the

situation as having to meet two complete sets of expectations and perform two separate

jobs. For Filipinos, asking managers to discuss their conflicting requests would be viewed

as insubordination.

The strategy: Concentrate and adapt. Management needs to provide the information

that people need to be comfortable with the new organization; this information depends

on people's cultural backgrounds. In Canada, people need to know how they fit with the

value drivers rather than short-lived organizational charts; such may not be the case in

other countries.

Pitfall 6: The relatives

The relative forces of time and space. Time in a merger is accelerated, compressed and

merciless. In Canada, publicly held companies need to show clear results at the end of the

first quarter after the announcement. Individuals going through a merger have to work at

an accelerated pace at the very same time that the inner adaptation of change - personal

and psychological transition - weighs them down and operates on personal, rather than

linear time.

 The concept of time is also related to culture. While long-term in North America tends to

mean three years, it means up to 30 years in Japan. Consequently, Japanese strategy

discussions are likely to take into consideration events that Canadians consider irrelevant,

since they are expected to take place beyond the Canadian planning horizon.

Space is also relative. In an increasingly virtual world, those not "connected" in the

same space and time feel disconnected from the decisions and the center of the action.

Irregular and incomplete communications at headquarters becomes a daunting challenge

for those who live in different time zones, regions, countries and organizational units.

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The strategy: Adapt. Adapt to the realities of change and transition - they are different

experiences and each individual will have their own way of going through them. Help

guide and support employees through the endings that they need to come to terms with

before you expect them to embrace the new world. Provide temporary structures to

enable people and departments to navigate between the old ways and the new . Actively

manage the merger across time, space and organizations, keeping in mind the different

concepts of time and space that may be at play. Create the appropriate communications

tools and the accountabilities and standards that will enable the organization to better

operate across time and space.

Pitfall 7: The guiding light

At a time when leadership and active management is most called for, the stress and

uncertainties associated with the merger causes an inward focus and a retreat to safe and

high ground. More leadership is needed, at this time, than less. One of the primary roles

of a leader is to articulate a vision and inspire others to join in that vision. . A clear new.

In the case of international M&As, the need for leadership remains, but the nature of

leadership changes. Being a good leader requires different skills and attributes in

different countries. For example, charisma and a positive personal image are important

attributes of leadership in the U.S., more so than in Canada.

The strategy: Adapt. Only a new culture can create the context for true change to

happen and hold. Changing culture means changing behavior. One of the quickest way to

effect change and create the new company is to place in all key positions those

individuals who are true representatives of the new culture and who can lead effectively

people on both side of the company's cultural divide. These people are the role models

who demonstrate, with the visible active support of senior management, what the new

culture is.

Conclusion

These pitfalls of mergers and acquisitions challenge today's leaders to a new standard of

managing change. The strategy is clear - accelerate, concentrate, adapt, and in the case of

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international M&As, consider cultural differences. The human and cultural issues that

separate the 17% from the 83% are not about some abstract values or the "soft stuff", but

the concrete reality of productivity, economic value and sustained growth.

So while devising a strategy to overcome the pitfalls one can analyze the impact on

employees for the action’s takes by HR department in case of Merger and Acquisition

Actions from HR Psychological and Cultural Impact on employees

Communication : Management cascades/road shows/discussion forums

Raises questions amongst employees(What is happening?)  

Business strategy: Loose coupling or tight integration

Employees question the rational(Why is it happening?)

Organizational structure: Integrating/rationalizing operations Managerial de-layering

Employees question their short-term futures(Where will I be in six months?)

Appointments and exits: Redundancy/relocations/new roles/ new appointments

Employees question their long-term prospects(Will I have a job?)

Terms and conditions: Pensions/salaries/benefits

Doubts raised about financial benefits(Will I lose out?)

Managing performance: Immediate targets and deliverables longer term objectives

Questions about management expectations of personnel(What is expected of me?)

Training and development Further questioning the future(Do I have a future?)

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8. KEY FACTORS OF HRM IN M&A

Staffing

Guideline: When making staffing decisions, gather reliable information about how

employees respond to cultural differences. Competencies related to managing diversity

should be given at least as much weight as technical competencies.

Throughout the lives of IJVs and IM&As, numerous staffing decisions must be made,

including decisions regarding whom to hire, whom to promote, and perhaps whom to let

go. In addition to ensuring that an alliance is staffed with people who have the technical

proficiencies required, staffing practices can improve the organization’s effectiveness by

identifying individuals who are more likely to be effective working amid cultural

diversity. Staffing practices also should be sensitive to the composition of teams (i.e., the

content and structure of cultural diversity).

8.1 Staffing for cross-cultural competency

On the basis of their experiences and a review of the literature, Schneider and Barsoux

(1997) proposed a set of behavioral competencies needed for effective intercultural

performance. These included linguistic ability, interpersonal (relationship) skills, cultural

curiosity, ability to tolerate uncertainty and ambiguity, flexibility, patience, cultural

empathy, ego strength (a strong sense of self), and a sense of humor. When evaluating

employees for staffing decisions, competency models such as this one provide useful

guidance that can increase an organization’s ability to staff its alliances with employees

who easily adjust to and enjoy cultural diversity.

However, it should be noted that competency models for cross-cultural adjustment often

are developed on the basis of expatriates’ experience (e.g., Mendenhall and Oddou, 1985;

Tung, 1981). While expatriate assignments may share some similarities with IJV or

IM&A assignments, there also are many differences. Much more research is needed to

identify the personal characteristics most likely to contribute to success in these settings.

When an organization’s strategy requires that it participate in a large number of IJVs and

IM&As, it has the opportunity to conduct such research. Doing so can help it further

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refine its understanding of how various personal characteristics relate to the performance

of employees in culturally diverse organizations.

8.2 Staffing for composition

As we have noted, cross-cultural alliance partners often establish teams to ensure the

airing of multiple perspectives prior to decision making (Apfelthaler et al., 2002).

Especially during the early stages of the alliance’s evolution, these teams often are staffed

with equal numbers of representatives from each partner involved in the alliance.

For example, following a merger, this tactic might be used ensure that the two

companies have equal representation in the new top management team (Schweiger et al.,

1992). This tactic also is likely to be used when forming the board that oversees an IJV,

when staffing IM&A integration and transition teams, and so on.

While representational staffing has many benefits, it may inadvertently lead to

unnecessary conflict, divisiveness, and turnover if it creates teams characterized by

strong fault lines. Fault lines can be avoided if staffing decisions take into consideration

the structure and content of diversity created by a combination of people selected to staff

a team. In other words, selecting the “best” people for a team assignment involves more

than evaluating the performance potential of individuals: it requires evaluating the

performance potential of the team as a whole. In addition to avoiding the creation of

teams or departments with clear fault lines, staffing decisions also need to consider the

status dynamics that are likely to arise within a team or organizational unit. When

members of a group perceive a clear status hierarchy, lower participation and

involvement can be expected from those on the lower rungs of the hierarchy, regardless

of their actual expertise and knowledge.

8.3 Training and development

Training and development activities can address a number of challenges created by the

cultural diversity present in IJVs and IM&As. Training to improve cultural awareness

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and competencies may seem the most relevant form of training for improving

intercultural relations, but appropriate business training should also be helpful.

8.3.1 Cultural awareness and competency training

Perhaps most obviously, cultural awareness and competency training can quickly teach

employees about cultural similarities and differences, and perhaps diminish their

reliance on inaccurate stereotypes. (Triandis et al., 1994).

As was implied by our earlier discussion of the many types of cultural diversity present in

some IJVs and IM&As, awareness training should not be limited to learning about

national cultures; employees may also benefit from information about differences (and

similarities) due to regional locations, industries, organizations, and membership in

various demographic groups.

Besides Educational briefings may be helpful initially, but as the alliance evolves, more

intensive team-building workshops and joint problem-solving sessions will likely be

needed as employees experience the many implications that cultural diversity has for

their daily interactions.

8.3.2 Business training

The potential benefits of cultural awareness training seem obvious, but business training

also can improve the alliance’s ability to manage its cultural diversity. Business training

can help to establish two of the conditions that enable diverse groups to reap the benefits

of their diversity: an understanding of shared goals, and mutual respect. Unless

participants in an alliance believe they share the same interests, they may assume that a

competitive relationship exists between the alliance partners.

Through business training, employees in an alliance can develop an appreciation for how

the capabilities and resources of each partner can contribute to success. For example, if

IJV partners enter a relationship that is not based on a fifty-fifty equity relationship,

employees in the venture may assume that the higher-equity partner will ultimately have

more influence and control, placing the lower-equity partner in a position of lower status.

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Thus, teaching employees about the complementary value of capital and intangible

resources provides employees with a solid foundation for developing mutual respect.

8.4 Performance management

For any organization, performance management is an important and very complex aspect

of human resource management. For IM&As, creating a unified performance

management system is perhaps the greatest challenge faced by organizations that seek to

blend two disparate cultures (Fealy et al., 2001). For JVs, a major challenge is creating a

performance management system that aligns the interests of managers in the venture with

those of the parents (Evans et al., 2002).

In addition to contributing to employees’ performance in the technical aspects of their

jobs, performance management systems can improve cross-cultural relations by ensuring

that employees’ efforts are directed toward shared goals, providing them with feedback

that provides insights about how people from other cultures interpret their behaviors,

and rewarding them for developing the competencies required to be effective in a

culturally diverse organization. Training programs can inform employees about the

shared goals of alliance partners, but performance management systems must convince

employees that the rhetoric is also the reality.

Ideally, at each evolutionary stage, all employees involved will understand how their

performance is assessed and how performance assessments relate to the goals for the

alliance. Rewards and recognition for performance that contributes to achieving the

alliance’s goals serve to reinforce the message.

The norms that govern giving and receiving feedback in various cultures differ greatly,

yet in any culture, giving and attending to feedback is necessary for maintaining effective

relationships. Cultural differences mean that feedback communications are particularly

prone to misunderstandings and misinterpretations. Well-designed performance

management practices can ensure that employees receive the feedback they need in a

culturally appropriate way. According to a study involving several hundred U.S.

organizations, the success of domestic diversity interventions was enhanced when

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supporting sanctions were in place. Requiring everyone to attend cultural awareness and

competency training communicates their importance, as does providing rewards to

employees who provide evidence of improvement (Rynes and Rosen, 1995).

8.5 Examples

8.5.1 Acquisition strategy of Keppel TatLee Bank Ltd

In January 1998, the intention to merge Keppel Bank and Tat Lee Bank was announced.

Keppel Bank and Tat Lee Bank obtained approval from the Monetary Authority of

Singapore for a merger that involved a share swap. The Merger Steering Committee was

headed by the CEO of Keppel Bank and comprised seven selected members - 4 from

Keppel Bank and 3 from Tat Lee Bank. An external business consulting firm was

appointed to assist with the change management of the business. However, the Steering

Committee decided that the harmonization of HR issues would be driven internally and

as such there was no involvement from external HR consultants.

8.5.1.a The Role Of HR

It was imperative that the merger should result in a consolidation of resources and cost,

especially headcount cost as there were obvious duplication of jobs and functions. The

HR Team, headed by Kuang King Khoong, the HR Director, was responsible for issues

such as:

• Alignment of salary structures

• Harmonization of employee benefits

• Consolidation of HR policies, administration and systems

• Identification of duplicated job roles

• Development of an employee redeployment process

• Planning of an inevitable retrenchment exercise

The HR Team was also engaged in the extensive negotiations with two separate unions:

• Singapore Bank Employees’ Union (SBEU)

• Singapore Bank Officers’ Association (SBOA)

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8.5.1. b Challenges Faced By HR

One of the main challenges faced by the HR Team was the rationalization of salaries and

benefits of the two banks. From the analysis of the employees’ pay and benefits, gaps

were identified and solutions proposed. The HR Team had to overcome much resistance

from the affected employees. A lot of effort and time were spent in communication and

negotiation.

Another major challenge was to retain the people it wanted. Some IT personnel for

example were critical to the transition but only for a limited period of time. It was

difficult to hold them, although the economic crisis at that time helped to control the

situation. The HR Team considered adopting a “retention bonus” plan. The concept was

to retain them for the transition period with an incentive, which would be paid if they

stayed for the agreed period to successfully complete their tasks. This plan was not

adopted eventually. The affected employees were subsequently either redeployed or

retrenched.

8.5.1. c Key Lessons Learned

Kuang was quite relieved that apart from the news of its retrenchment, there were very

few unfavorable reports from the press. The HR Team ensured that if there were news

affecting employees, they should hear it from the Bank first. Throughout the merger

exercise, employee newsletters were distributed periodically. Three Communication

Sessions were also conducted by the senior management to brief the department heads

and other employee representatives on the progress of the merger. In retrospect, Kuang

feels that the communication could be even more extensive, regular and with greater

openness. He stressed that communication is one of the most important factors of a

successful merger, especially when the public and the press were watching it closely.

Kuang’s advice for a successful merger is for the management team to keep an open

communication channel with the employees. Apart from focusing on the business and

economical aspects of a merger, priority should be given to both the tangible and

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intangible human resource issues. In his view, human capital is one of the most important

assets of an organization. How it is managed, particularly during a merger or acquisition,

will have lasting impact in the newly merged organization.

8.5.2 Acquisition strategy of Raffles International Ltd

As the owner and operator of fine hotels and resorts, Raffles International consistently

delivers its promise of not only meeting but also regularly exceeding expectations. In

support of this vision, Raffles International Limited began to develop an international

expansion strategy focused on obtaining a presence in capital and gateway cities in

regions outside Asia. To this end, it decided to acquire Swissotel Holdings AG at a cost

of S$420.1 million. Through this acquisition, Raffles International gained ownership of

the Swissotel brand and its trademarks and management contracts for 22 hotels including

those of 6 majority or wholly owned hotel properties and minority interests in 3 hotels.

The acquisition of Swissotel achieves several Raffles Holdings strategic thrusts:

Increased Global Reach

Enhanced Brand Equity

Operating Benefits Of Scale

Achievement Of Strategic Business Goals

Enhanced Human Capital

a. How It All Began

i. Pre-deal Stage

Armed with a clear business expansion plan, Raffles Holdings set out to identify potential

hotel operators for acquisition to complement its existing business. Extensive research

was conducted to determine the suitability of hotel operators who could be a strategic fit

to Raffles business goals and financial objectives.

ii. Due Diligence

Once the target hotel operator was identified, Raffles Holdings immediately set up two

task forces to conduct due diligence on the target hotel operator.

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The first Task Force was specially assigned to look into the legal issues of each

functional areas and their implication on the overall acquisition. This team, made up of

key personnel from Business Development, Finance, Human Resource, Legal and Sales

and marketing locked themselves with a myriad of files, documents, contracts, and

agreements, correspondence and notes to conduct detailed paper searches for any material

evidence that would have an impact or implication on the acquisition whether financially

or operationally or legally. As this was a very daunting and challenging task, only the

best people were deployed to this team.

The other Task Force was divided into Project Teams to gather as much information as

possible on Swissotel in the respective functional and operational areas to aid the

acquisition process.

In the case of the HR function, the following areas were carefully analyzed and studied:

• Employees’ Employment Contracts and Terms e.g. notice of termination, severance

pay, duration of contracts, etc

•Employees’ demographics, qualifications, skills, experience and competencies

• Employees’ remuneration details, costs of benefits and related costs

• Pension and retirement plans and company’s contractual obligations

• Employer’s liability – both written and implied

•Agreements with Unions and Work Councils

iii. The Integration

Once the deal was concluded, management moved swiftly to integrate the Swissotel’s

business, philosophies, people, policies, practices, systems and processes with that of

Raffles International.

iv. Communication

To drive the integration process, a communication team was formed to ensure that

messages to the employees were delivered the way they were meant to be.

v. Systems and Processes

From a business standpoint, the Group consolidated its global sales, distribution and

marketing network and implemented uniform hotel operating standards and procedures.

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The integration of Swissotel allowed the Group to realize synergies and create

opportunities for shared services. The integration process further acted as a catalyst for

the establishment and implementation of various systems and processes such as the

Customer Relationship Management (“CRM”) system, Human Capital Management

System (“HCMS”) and Financial Management Information System (“FMIS”). These

systems are the vital infrastructure to support the Group’s medium to long-term growth

business objectives.

vi. People

The acquisition was that of an ongoing operating hotel and as such the employees in each

operation were much needed to keep the operations functional and going. However, there

was duplication of jobs in some areas such as Human Resource where a team exists in

both organizations. Raffles International was keen to promote a system of meritocracy

and drove this philosophy by not making jobs redundant immediately. Job holders who

held duplicate jobs were reassigned and a period of 6 months was allowed for the

incumbents to demonstrate their competence level, skills and know-how. Being a

Singaporean was not a criterion for retention and the final selection criterion was based

purely on merit.

b. Key Success Factors

The 3 key success factors of a merger or acquisition are “Strong leadership,

communication and consistency on deliverables”.

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9. PANKHURI

A unique approach has been adopted to resolve the HR issues in the book “Whispers of the Devil in the Angel – K. Srinivas Rao” and it is called PANKHURI. The following table explains in detail all the aspects of this approach :

PANKHURI ISSUE APPROACHES TO ADOPT

P: Policy and Procedure Mapping

HR policy integration becomes crucial for post merger integration success if the two merging companies carry different legacy procedures. Examples of policy and procedure conflicts are PMS system differences (rating scales, promotion processes, 360 degrees vs. single rater system etc.), paid time off/leave policies (leaves are determined by the grade or designation so mapping the new org structure to the leave policy becomes important), expatriate policies, remuneration policies  etc. So the issue here is that the new entity should have a policy procedure system derived from the 2 entities, has to be most beneficial to both and should cause the least friction from the change management perspective.

I Buy I Dictate: the policy/procedure of the bigger company prevails and the smaller one has to adjust/change

High Impact: the most flexible/malleable policy/procedure system is changed so that there is least friction/resistance. The high impact procedures remain and the low impact one’s leave, irrespective of what is best for the company.

Best of the Two: the best practice prevails, whether it is from the smaller company or from the larger one. Also, the merged entity can pick up a new policy/practice out in the market if that’s best for the new firm.

A: Align Organization Structure

As mentioned above, there are 2 people for each position, so the issue here is who stays, who gets demoted, who gets laid off and on what basis. Things to be determined are grades, designations and titles, reporting structures etc. (these can be new or picked up from one of the merging entities, TBD)

RPH Model (Role, Position, Hierarchy)

 

Role: divide roles between those that are vital, essential, and desirable or can be scrapped. Take action according based on other variables.

Position: Job analysis of the role. How much decision

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PANKHURI ISSUE APPROACHES TO ADOPT

making authority, responsibility etc will each role carry? Will it be similar to the merging companies or will differ?

Hierarchy: who will fit which role and position based on their background, qualification, performance record, potential to be promoted, etc. This is the most crucial and most difficult as each employee has been mapped using difference performance management of their legacy companies.

N: Neutralizing Cross Cultures

The management styles and geographical imprints of the merging entities will differ, hence making integration difficult. Organizational cultures pose a difficult integration issue. Some organizations are bureaucratic while others are more flexible. Also, country cultures are different impacting organization cultures.

A new organization culture best suited for the new entity is to be introduced and reinforced by the structure and policies. E.g.: if the new culture is to be more open and flexible, the policies and procedures around reward and recognition and performance management have to be such that they reward and reinforce open and flexible behavior among employees.

K: Knowledge Management

For any successful integration, it is imperative that all the knowledge of the legacy systems of shared. There is nothing like confidential data to be hidden from the new entity. This needs to be introduced as a mindset in employees. Issues that arise here include cases where employees are reluctant to share information thinking that they will not be required in the company anymore of the information is shared, typical response being “this is all I know”.

Awards: Reward those who share information

Policy: Create a policy that makes it mandatory for employees to share information

H: Handling Anxiety

The uncertainty caused by any change management initiative creates an issue in an M&A too. Specifically, uncertainty around pay differentials, job loss, demotion, relocation etc.

Communication and reinforcement through messages, rewards and actions is the only way to deal with anxiety at the individual, group and organization level.

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PANKHURI ISSUE APPROACHES TO ADOPT

U: Upgrading Skills Sets

The two merging companies will have different competency models and different skill sets of employees. The competency framework needs to be matched and the skills sets of some employee will need to be upgraded to match the rest.

Technical, managerial and role specific training to be conducted

R: Relocation Plan

In a merger involving two large organizations, there would internal and external relocation of personnel during the integration phase. Issues arising here could be determining the decision criteria for relocation, handling change management etc.

The determining factors for deciding relocation should be:

 

Performance of the respective employee

ROI derived from relocation

Analysis of the replacement cost

Potential of employee to be promoted

I: Ideal Compensation

Compensation includes benefits scheme, insurance plans, leave encashment policy, government regulations, bonus, differential pay etc. All these might be different for the merging companies and hence need to be mapped.

Compensation needs to be mapped by first mapping positions and roles and then conducting an industry benchmark. Compensation is one of the most sensitive issues and only those practices that are best for the new company should be adopted.

Despite all the talk about the synergistic benefits that an M&A provides, there are examples galore of failed M&As. What is worth noticing is the fact that there exists enough literature on the possible role of HR in an M&A yet there seems to be very little that companies are doing to put theory into practice. What are the possible causes and hindrances in this regard and how can they be overcome needs to be found out to ensure that the human element is not compromised over financial and other business related issues as usual

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DATA ANALYSIS

M&A does deliver

European merger and acquisition (M&A) transactions are surprisingly successful: over

70% of respondent’s report their M&A deals achieved targeted objectives (published by

Towers Perrin). New desk research into 50 large mergers and acquisitions in Europe

backs-up the respondents’ claims. In 45% of the deals the share price of the merged

company outperformed the rest of its sector in the following year. Both the operational

and financial success-rate of M&A deals revealed by the survey contradicts previous

studies into M&A performance and should embolden companies considering M&A

activity.

People issues are critical

The prominence given to companies’ human capital before and during M&A deals is

critical to the success of the transaction. There are differing strategies of involving human

resources functions by senior managers responsible for managing M&A. Transactions

that place HR considerations and capabilities centrally have a higher success rate than

deals that neglect HR.

HR expertise is key factor for success

The more capable the HR department, the greater the chances of M&A success. Yet the

most common responsibility given to HR during the M&A process is to provide ad hoc

advice to senior managers, rather than carrying out a structured and formal role.

Therefore, while a greater level of M&A success than is commonly perceived, it also

suggests there is still significant room for improvement by ensuring HR involvement.

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Mergers are not for amateurs, chorus the HR professionals “Whatever you do, avoid

using the merger as a career step,” says one. “You need seasoned professionals in place

to do the job, at least in the short and medium term.”

And you’ll need to know your management capabilities before the hard work begins. “A

merger will quickly reveal management weaknesses like no other event,” says an HR

director. “This is not the time to discover that your people management is not too good

and it certainly isn’t a time to try and sort it out.”

But it can be turned into a great management development experience for those who want

it. “At the time of a merger you are in a virtual construction zone; things fall out of the

sky and hit you, “says a financial services executive. “You have a choice. You can get

out and find a quieter place to work, or you can pull on a hard-hat and get on with it.” If

you choose the latter course, “you’ll learn so much in that merger period, it’s like

cramming five years’ normal management experience into 12 months.”

GETTING THE HR CONTRIBUTION IN M&A RIGHT

As part of the research process studying of senior human resource professionals in

Europe, the US and Asia who had all recently experienced a merger (either as acquirer or

target). From this study, distilled the following critical HR-related factors:

1. Ensuring effective communications

2. Achieving cultural alignment

3. Keeping the business running and understanding ongoing roles and

responsibilities of a business in transition

4. Developing a change management plan

5. Securing the top team

6. Prioritising activity in the first 100 days and beyond

7. Performing due diligence in HR-related areas

8. Finalising and developing a staff model

9. Developing a reward strategy for the new organisation

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If people really matter, why don’t HR departments?

People issues are recognised as being of paramount importance in successful M&A. Yet

analysis finds that HR departments play only a modest formal role in most deals.

The majority do not have a dedicated HR resource to participate in M&A activity. Of

those that do, most do not get involved until after the planning and strategy-setting phases

of a merger or acquisition – the precise point at which a full and frank assessment of the

culture and key people at the target organisation should be taking place.

This study provides some insight into the positive impact that a deeper HR involvement

in the M&A process can have. In other words, it appears that the more capable the HR

department, the greater the chances of M&A success.

How capable is your organisation’s HR department in relation to M&A and other

activity?”

1. Incompatible cultures

2. Synergies non-existent or over-estimated

3. Inability to implement change in new organisation

4. Clash of management styles/egos

5. Inability to manage target organisation

The top five causes of M&A failure identified by the study are all deeply rooted in the

“softer” management issues of integrating different cultures, leadership teams and

workforces.

So to identify the people issues that have a critical impact on M&A activity and the roles

entrusted to human resources professionals during the M&A process.

Most of companies going through M&A made immediate job cuts. Over half of

companies that gained employees after a merger or acquisition saw share prices grow at a

rate above the sectoral average. In contrast of companies that lost employees saw their

share price fall below the sectoral average growth rate.

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Boeing, BP Amoco, British Airways, DaimlerChrysler, Deutsche Bank, E.ON,

ExxonMobil, The Ford Motor Company, GlaxoSmithKline, Honeywell, Syngenta,

Unilever and United Technologies. The best performing merged companies were likely to

have top management that consisted of both companies’ management teams and that had

increased headcount. The worst performing companies were likely to be led by the

acquirer’s management alone and to have lost employees.

Role of senior management

CEO and senior management MUST invest their own time. Regular walkabouts by top

managers, accompanied by their immediate reports, are essential to retain motivation and

persuade each side that their own leaders are not being sidelined.

This study points that people issues are critical to the success of M&A deals. It has also

revealed the low level of involvement that many HR departments have in those deals.

Since HR departments have (or should have) knowledge and expertise to contribute on

these issues, how can this gap be narrowed? The answer lies partly within the boardroom,

partly within HR itself, and partly outside the organization.

Inside the boardroom

Ultimately, senior management is responsible for the success of M&A deals. We have

outlined the need for the CEO and the senior management team to make themselves

visible to employees of the new company and to coordinate the integration of all

corporate functions, such as internal communications. They must also take responsibility

for ensuring that the HR department is systematically involved in the M&A process, and,

if need be, for assigning a budget to bring in outside specialists. Otherwise firms risk

losing control of key human capital issues – even as they boast that people are their

greatest asset.

Inside the HR department

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A new breed of HR professional is required, one that can think strategically and

communicate directly with senior management about the people issues of M&A activity.

Indeed, there are signs that just such people are emerging—organizational development

experts and corporate integrationists with the skills and insight to bring together the

diverse parts of a business empire and make people work together in pursuit of the

business’s objectives. Disparate benefits and compensation policies also need to be

integrated to align the company’s employees with the senior management team’s

business objectives. The role of HR departments in the due diligence process is also vital

to ensure the M&A transaction is accurately priced.

Outside the organization

Often HR departments cannot get involved in M&A deals to the extent that they should.

Why? Because, particularly in the case of big global and cross-border mergers, they just

don’t have the manpower or the experience to do the work with the speed required. For

these departments, the answer is to bring in resources and expertise from a trusted outside

partner.

M&A deals are important to companies’ strategies. People issues are critically important

to M&A deals. If senior managers pay enough attention to human capital, if they enable

HR to play a fully engaged and constructive role in the M&A process, and if they budget

for outside help where it is needed, that way lies success

The roles that helps HR manager in a merging firm

1. Performing due diligence on the benefits/compensation plans of prospective firms

2. Ad hoc advice to senior management on HR issues

3. Identifying and retaining key talent in merged entity

4. Designing the new reward programmes post-deal

5. Managing communications to the whole company on M&A activities

6. Performing due diligence on the HRIS/ administration systems of prospective

firms

7. Performing due diligence on the culture of prospective firms

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8. Helping to define the new business strategy

9. Delivering cost savings through downsizing of duplicated functions

CONCLUSION

Indeed, it is a business imperative to merge and acquire companies. Despite every

intention to derive synergy from the mergers and acquisitions, only one third of all such

deals are successful.

1. To fully gain the benefits of mergers and acquisitions, it is important to restructure the

organization and quickly induct the employees to its new goals and culture. A merger of

the size like HP-Compaq has implications for the workforce of these companies across

the globe. Although the merging entities give a great deal of importance to financial

matters and the outcomes, HR issues are the most neglected ones. Ironically studies show

that most of the mergers fail to bring out the desired outcomes due to people related

issues.

2. The human resource issues in the mergers and acquisitions (M&A) can be classified in

two phases the pre-merger phase and the post merger phase. Literature provides ample

evidence of difference in between the human resource activities in the two stages: the

pre-acquisition and post acquisition period. Due diligence is important in the first phase

while integration issues take the front seat in the later.

3. The pre acquisition period involves an assessment of the cultural and organizational

differences, which will include the organizational cultures, role of leaders in the

organization, life cycle of the organization, and the management styles. The mergers

often prove to be traumatic for the employees of acquired firms; the impact can range

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from anger to depression. The usual impact is high turnover, decrease in the morale,

motivation, productivity leading to merger failure.

4. The other issues in the M&A activity are the changes in the HR policies, downsizing,

layoffs, survivor syndromes, stress on the workers, information system issues etc. The

human resource system issues that become important in M&A activity are human

resource planning, compensation selection and turnover, performance appraisal system,

employee development and employee relations. M&A activity presents a different set of

challenge for the human resource managers in both acquiring and acquired organizations.

5. The organizational culture plays an important role as each organization has a different

set of beliefs and value systems, which may clash owing to the M&A activity. The

exposure to a new culture during the M&A leads to a psychological state called culture

shock. The employees not only need to abandon their own culture, values and belief but

also have to accept an entirely different culture.

6. In case of cultural clash, one of the cultures that are dominant culture may get

preference in the organization causing frustration and feelings of loss for the other set of

employees. Leads to “us” versus “them” attitude which may be detrimental to the

organizational growth.

7. The uncertainty during the M&A activity divert the focus of employees from

productive work to issues like job security, changes in designation, career path, working

in new departments and fear of working with new teams. The M&A activity leads to

duplication of certain departments, hence the excess manpower at times needs to be

downsized hence the first set of thoughts that occur in the minds of employees are related

to security of their jobs.

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8. The M&A activity also causes changes in their well defined career paths and future

opportunities in the organization. Some employees also have to be relocated or assigned

new jobs; hence the employees find themselves in a completely different situation with

changes in job profiles and work teams. This may have an impact on the performance of

the employees. Research has found that at least two hours of productive work per

employee per man day is lost during the M&A activity in the organizations.

9. On the other hand if the compensation level of employees in acquiring firm is lower

the employees may press to have equal compensation across all the divisions of the firm.

The pay differential can act as a de-motivator for the employees of acquiring firm and

may have long term consequences. The compensation issues may also involve legal

angle.

10. Another practical problem is differences in the grading or organizational structures in

the systems. Since the organizational structures are different designations for the

employees are used, during the integration of acquired organization the acquiring

organizations need to develop a mechanism to remove the differences in the grading

systems bring them at equal level, as many a times the compensation is related to the

grade of employee in the organization.

11. The employee relations issues gain more importance in the acquisitions of

manufacturing units in India. The power equation between management and trade unions

is bound to change with the acquisition. The acquiring management also needs to keep

track of number of unions. Hence comprehensive analysis of trade unions operating in the

plant should be done. This will require study of management-union equation, employee

contracts, political linkages of the unions, compensation related clauses, number of trade

union and dynamics between the unions.

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This report serves as a warning signal. While people may be the heart and soul of a

business, not enough time and effort is expended getting these often brittle, fragile people

issues into the right context. Companies are living things, fluid and constantly changing.

Without bringing people skills to the agenda of the merger and acquisition process we

close off a whole area of expertise that is a must-have for today’s business operations.

The effort required may be substantial, but so, too, are the potential rewards.

RECOMMENDATIONS

The companies should ensure to consider the following practical tips:

PRE-MERGER & ACQUISTION STAGE

PLANNING

1. Involve HR professionals early – involve them when scoping a proposed deal

2. Finance departments often drive M&A processes. If HR departments want a seat

at the M&A table, they must speak in financial terms

3. Identifying realistic synergy targets, and exercising caution in estimating both the

timeframe and the potential cost of redundancies

4. Ensuring that cultural due diligence is carried out prior to a deal, so that effective

integration programmes can be implemented immediately post-deal

CREATING AWARENESS

1. Find out through surveys what cultural values are valued and which of them

should be preserved

2. Conduct common understanding programs with the executive level employees of

the company which you are takeover.

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INTIAL COMMUNICATION

1. Be clear and transparent about the nature of the deal – if it’s not a merger of

equals, say so!

INTEGRATION STAGE

PROACTIVE RESPONSE

1. Acknowledge the problems as and when they arise

2. Moving quickly but fairly in the appointment of new management teams at all

levels in the business, and dealing humanely with the casualties,

a. In the case of acquisitions, the HR needs to ensure an equitable and

fair treatment of employees,

b. In case of lay-offs, offer outplacement services and just severance

packages

3. Provide the management with development tools and ideas to implement the

result of the surveys and feedback

COMMUNICATION

1. Encourage open houses or forums where employees can come together and

discuss the deal and allay their fears and insecurities surrounding it

2. Negotiate and make the union leaders understand about the entire issue and their

future positions after M&A

3. People must know where they stand- Employees in the branches and plants are

the most starved of information. So you need to explain why the deal is good for

them and their future job security.

4. Have a definitive plan with specific dates for individual communication

STABLIZING AND ADAPTING THE CHANGE

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1. Workforce management- Focus on the top team and key talent. Get that talent

inventory completed quickly and make sure you secure the people who are

mission-critical.

2. Be bold in integrating rewards and benefits. Understand the organization

structure/salary structure and try to reduce the parity between the two companies.

3. If there have to be job cuts, go deep the first time and do it quickly. Avoid a

constant, demoralizing stream of announcements of redundancies

POST MERGER & ACQUISTION STAGE

EVALUATION

1. Conduct a survey of all levels of management about 3 months after the deal is

through in order to assess the progress towards the new culture

2. Understand all the legal cases pending with the acquiring company and take full

accreditation of the cases to take next steps.

POST COMMUNICATION

1. It is important to keep the employees updated about the performance appraisal

guidelines of the new company. Any transformation in the compensation policies

should also be informed to reduce ambiguity.

2. Establish an anonymous helpline for employees

3. Should facilitate transition teams that are averse to decision making based on

personal agenda and politics

4. The HR has to quickly take control in these cases and educate managers and

employees.

5. Advocate family assistance programs to make the employee that he/she is cared

for

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COMMON POINTS OF RECOMMENDATION THROUGHOUT

M&A STAGES

1. Credibility And Respect Needs to be earned by the buying organization (through

observing such things as thoroughness, technical knowledge and behavior of key

executives).

2. If a new skill set is required, for any new project in the pipeline, appropriate

training should be given to the employees and correct explanation should be

provided for the same.

3. New pension policies, if any and retirement benefits should be informed to the

employees to reduce employee turnover during an M&A activity. This will also

give confidence to the existing employees about their future

4. Ensure the due diligence process identifies the people liabilities and covers the so-

called “soft stuff”, such as the prospect for merging corporate cultures.

5. Communicate at all levels in the company – there’s no such thing as too much

communication

6. Pay as much attention to the people issues as the numbers; you won’t get the

benefit of the deal without the people.

The best way to show that the merger works is quickly to announce some new business

deals. Rapidly formed task forces from both companies can prove that the merger was

also a practical moneymaker & One way to avoid instant culture clash is to promote the

benefits of having acquired a new and complementary talent pool.

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LIMITATIONS

1. The origin or source of the data is mostly hidden.

2. Limited time to complete this study.

3. The secondary data can be distorted or molded by the provider

4. Data can be outdated

5. Data can be inaccurate and vague as it’s based on information uncertified &

personal option.

6. The sites giving data may be unreputed & unrecognized

7. The topic of M&A included vast global organizations, analysis and conducting

study on each parameter is not possible.

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HUMAN RESOURCE MANAGEMENT – V. S. RAO

HUMAN RESOURCE MANAGEMENT – GARY DESSLER

STRATEGIC HUMAN RESOURCE MANAGEMENT – SRINIVAS R KANDULA

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- Mergers and Acqusition – Jeffery A Krug.

- Leonard, Bill. "Will This Marriage Work?" HR Magazine, vol. 44 (April 1999): 34.

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- Bower, J. (2001). Not all M&As are alike – And that matters. Harvard Business Review 79(3):92-101.

- Schweiger, M.D. and Goulet, P.K. (2000). Integrating mergers and acquisitions: An international research review. In :Cooper, C. and Gregory, A. (Eds.) Advances in Mergers and Acquisitions Volume I, JAI, (New York, NY).

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- On with the Show", L. Laroche, CMA Management, December 1999 / January 2000.

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