Astute leadership can bring out synergies while avoiding collisions and steamrollers.

Mergers present opportunities and hazards for both the company and the HR manager. A KPMG study showed that 83% of mergers and acquisitions failed to produce any benefits — and over half actually ended up reducing the value of the companies involved.

Consolidation and costcutting may be great hazards to HR, but the opportunities are tremendous if you can convince the leaders of your value in bringing the combined company together.

That number is only astonishing when one considers how many mergers occur in a year, and how few companies seem to think matters through (particularly cultural and systems methods) and consider alternatives.

There are also opportunities. For every eight failures, there is a case where both companies emerge stronger (such as the merger between Fiat and Chrysler after the latter emerged from filing for bankruptcy ). In most cases, the success factor is where people in each organization show that they value the other, and actively work together to bring out the best values in each.

The role of HR

HR may be in a unique position to question assumptions about the nature of assets and synergies. Investment bankers have a narrower training, and are rewarded for making deals; human issues tend to get lost or overlooked.

The HR manager, on the other hand, has an opportunity to influence events so that each company comes out ahead but, to do that, the HR manager must preserve their own position! Before, during, and after the merger, HR may be responsible for assuring that cultural issues do not derail integration; for increasing innovation; for keeping communication going in all directions (upwards, downwards, across departments, across organizations); and for lessening the impact on those who are reduced and on the survivors.

Even at the highest level of the company, HR can have a role. The new leadership team will need to work together on a daily basis, despite cultural and personality differences, power issues, and other barriers. HR can act as a facilitator, and also as a coach to individual executives. Personal and team assessments can be helpful in enabling team members to work together constructively.

Opportunities for HR

Mergers and acquisitions are often planned and executed based on perceived cost savings or market synergies; rarely are the people and cultural issues considered. Yet, it is the people who decide whether an acquisition or merger works. opyright 2001-05 Toolpack Consulting, LLC. All rights reserved. Do not reproduce without written permission. The opportunity for HR lies in the fact that customer and employee reactions determine whether the newly combined company will sink or swim. If a convincing argument is made to senior leaders, HR may gain more power to increase the effectiveness of the organization, and may be able to mold the cultural changes instead of being pushed along by them.

Hazards for HR

One result of many mergers is the consolidation of staff departments. Eliminating one of the HR departments is sometimes stated up front as a justification for the merger.

For the losing department, layoffs tend to be a fact of life. The winning department may find a substantially higher workload. If both HR departments are kept, there may be issues of interdependence and autonomy, and hard decisions about which policies and services should be shared and which should stay separate.

In many cases, the parent company has taken on a great deal of debt to finance an acquisition. The next logical step is to cut costs and HR is often the first department on the block. Thanks to outsourcing agencies, even HR people in formerly indispensible functions such as benefits administration can now be replaced for shortterm gains (and, sometimes, long-term losses but since the stock market rewards cuts in head count, this may not be an overriding issue for leaders). Internal OD consultants may be the first to be cut, since they are not clearly required to keep products or services rolling out. This makes it particularly important for HR managers to make a strong value case to the senior leadership.

Fortunately, there are also opportunities for HR to bring out synergies, so that the combined company is stronger than the originals.

HRs role before the merger

The HR leadership has an opportunity before the merger to ensure that both organizations have a strategy mapped out in advance. Once the merger starts taking place, people will often be too busy to keep a strategic perspective.

Before the merger takes place, the leaders of both organizations — at least, of the dominant firm — should have a strategy mapped out, including communications to employees and customers, where layoffs will take place (if any do), and how the cultures should be merged. A SWOT (strengths, weaknesses, opportunities,

and threats) analysis should be done for the combined company. If possible, a brief culture survey (preferably done via interviews as well as paper or Web/e-mail) should be undertaken in both companies to discover what the cultural differences are.

Sometimes this will be obvious in some aspects -e.g. one culture values teams and bottom-up innovation, the other favors command-and-control tactics — but not in others, such as how and whether individuals and teams are rewarded for innovations, how failure is dealt with, whether confiict is addressed openly, etc. This will prevent disconcerting delays between the announcement and the implementation of the merger/takeover.

If the real purpose of the merger is to acquire another companys assets, in terms of a particular product or brand, its factories or patents, etc. that should be acknowledged and dealt with up front. If employees are fooled at first by pleasant words, they will react more strongly when those words become taunts.

Finally, before the merger or acquisition takes place, the leadership teams should consider the non-financial issues. Will people in the two companies be able to work together? Will acquiring a company, or merging with it, destroy the properties or drive away the talent that made it worth having? Can a simple partnership, alliance, or even stock ownership without integration provide more benefits than combining the two companies?

These issues may be overlooked by the leadership teams just as they are often ignored or downplayed by investment bankers who want to do the deal.

Some questions to ask the leaders, in person or via open-ended survey, are:

• Are there viable alternatives to the merger (for example, greater integration with suppliers, partnership deals, keiretsu )?
• Is there a communication strategy to keep employees and customers informed?
• Are the cultures for the two organizations compatible? Is there a plan for merging the cultures? Will one be dominant, and, if so, how will people operating under the other culture be brought on board?
• What are each organizations key strengths, weaknesses, opportunities, and threats?
• What is each organizations strategy? How will they be merged?

One way to get the answers to these questions is to have an outside agency speak with senior leaders, one at a time or, if that is not possible, to have them circulate a brief confidential survey and present the results at a facilitated meeting. Difficult questions, for example whether there are alternatives to a merger, should be raised as early as possible.

The HR manager may need to raise the issue of culture — how people work, how they think, what they value, and, of some importance, how they view the other organization. If the acquired (or acquiring) organization is viewed with disdain, these issues must be addressed up front. Likewise, severe cultural differences must be addressed. They can be overcome with attention and work.

Some cultural differences are obvious (e.g. one culture values teams and bottom-up innovation, the other favors command-and-control tactics) but others may be subtle (e.g. how and whether individuals and teams are rewarded for innovations). Will acquiring a company, or merging with it, destroy the properties or drive away the talent that made it worth having? If the real purpose of the merger is to acquire another companys assets, in terms of a particular product or brand, its factories or patents, etc. that should be acknowledged and dealt with up front. If employees are fooled at first by pleasant words, they will react more strongly when those words become taunts.

The HR leadership may, because of its skill and background, be placed in the uncomfortable but important position of persuading corporate leaders to admit the truth to themselves, and to employees.

HR as an internal consulting group

HR is often one of a few units which can work as an internal consulting group during a merger or takeover, along with quality or process engineering teams.

In this light, HR managers may be able to use management coaching skills to help managers and executives to communicate effectively and completely, to address power issues, and to deal with cultural issues. In some cases, HR may take a more active role; in others, HR should act as a coach.

Individual HR staffers need to understand their current skills and may need to update their knowledge or practice with role playing to ensure that they are working as constructively as possible. Process consulting skills are essential.

Some key issues in mergers follow.

Communication.

As people look inwards to try to find their place in the merged company and attempt to see their future in it — or outside it — productivity drops. The grapevine can become a major source of headaches. Constant, consistent, and honest communication from leaders and HR is essential.

Power and conflict.

It is essential to bring confiict out to the surface and deal with power issues honestly. If one group is obviously in charge, that should be admitted early on so people dont waste time with second-guessing. Often, people get wrapped up in turf wars which are destructive to both sides, rather than trying to figure out roles for both sides and have a win-win situation.

Culture

Organizational culture is an organizations shared values, beliefs, and preferred ways to behave — is a key to success, and though many talk about it, few seem to have the skills to grapple with culture and work with both organizations to assure a good fit. Many organizations use a brief cultural fit survey to assist them during mergers.

Operations

Ideally, processes can be examined to see where true synergies lie. In many mergers and takeovers, power relationships determine operational changes, rather than actual efficiencies or quality concerns. By making changes with facilitated cross-platform teams, HR can help to ensure that the best of the two organizations are preserved.

New HR Staff Roles

In a role as executive coach / internal consultant, HR staff can also be effective through:

Helping the leaders to agree on a clear and specific set of goals for the merger, with a focus on tangible, measurable results, which brings misunderstandings and con- fiict into the open.

Scenario planning — will the merger work if there is a market decline? What will be the responses of customers and regulators?

Exploring options — are there other ways to accomplish the same goals without a merger?

Investigating assumptions — the OD consultant, as an outsider, is in a unique position to bring out hidden assumptions. This should be done continuously throughout the process, though scenario planning and exploring options are expressly designed to explore and test assumptions.

Rewards - even where bonuses or profitsharing help to increase motivation, the money itself is often symbolic, a measuring stick for achievement. The HR staff should help the organization to set up milestones and celebrate small and large successes along the route to integration, so that people not only feel progress, but also feel that their achievements are being rewarded.

Integrating initiatives — ensuring that managers are not overwhelmed by initiatives and changes that all seem to come at once.

Watching key processes - often forgotten are key processes such as new hire orientation, training, and even compensation systems. These processes all support or sabotage both the present and desired culture. As an HR professional, you know the impact of these processes, and can work to make them support change efforts.

You cant help if youve been laid off

Most of us have heard the flight attendant say, If you are travelling with a child, put your own oxygen mask on first. If youve passed out, youre not going to help anyone. Likewise, if youre laid off in the first stages of a merger or takeover, youre not going to be able to help guide the organization to a safe landing. There are a number of steps you can take to avoid the loss of your job, and the loss of your department, in a merger or takeover. None are infallible; it is unfortunate, but often choices are made based on personalities or power relationships.

Milestone. a deadline by which some important, measurable outcome will have been reached (a system implemented, customer turnover reduced by 10%, $1 million savings from employee ideas)

SWOT analysis. analysis of strengths, weaknesses, opportunities, and threats

Stretch targets. a high target, above what one would normally expect to be able to achieve, to motivate people by raising expectations

Synergy. where the whole is more than the sum of its parts

As the acquisition of Chrysler by Daimler-Benz shows, profitability and practical matters can take a back seat to personalities and power relationships.

Aside from the political and personal influence moves which are outside the scope of this article, there are some steps you can take. First, you should have a good, clear picture of how your department adds value to the organization, described in terms the CEO and other powers would resonate with. What is your contribution to the bottom line? Can you provide a brief presentation of problems you have seen in the organization, and steps you have taken to resolve them? Do you have cost savings of interventions your department has undertaken, e.g. quality initiatives, cultural change, employee survey-based change, facilitated process reengineering, etc.?

One way to justify not only your departments existence, but also its leading role in the merger integration, is to link key results to human issues. Having a consulting firm statistically link employee survey results (possibly from existing data) with operational, customer, or financial data can pack a powerful punch. Not only do we know internal communication is important, but we know raising it by ten points increases customer retention by 5%. That leads to a $600,000 increase in revenue! Similar analyses can be used to predict employee retention.

An outside source of affirmation is The Loyalty Effect, a book which links customer retention to revenue and profit. This is not a major breakthrough it can cost ten times as much to gain a new customer as to keep an existing one but the research support is enormous.

More significantly, the writers show how employee retention has a strong impact on customer retention, which in turn has a strong impact on both profit and revenue. This bottom- line argument can both position you as having a strategic mindset, and give more weight to the people issues which are key to a smooth, productive integration.

Collecting key department success stories — money saved through best practices, innovation, or simple good sense, services provided, etc. is usually helpful.

The key here, and you probably have guessed this by now, is to show how much value your department adds, using as many quantifi- able metrics as you can.

Find all cost savings, efficiency increases, and other positive outcomes that you can, and show how your department is a profit center, not a cost center.

Its not a guarantee, and it may not even work as well as forging strong personal relationships, but it can be very convincing, and a show of good faith (and a demonstration that you, personally, understand real business issues.

Wrapping it up

By knowing what makes mergers succeed, keeping an eye on the human issues as well as the financials, and using appropriate tools, companies can make mergers work.

Your job as an HR manager is to quickly develop a strategy for helping the company to achieve the synergies it needs and develop HRs game plan for leading the process. It helps to have achievable goals, with stretch targets, and concrete milestones (supported by good, valid measures) for implementation.

The most important step may be to sell the process — because the best change plans are useless unless they are implemented.

For your further perusal:

• Mergers and Acquisitions: Finding Synergy and Avoiding the Reefs