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People Management: The Key to Successful Mergers and Acquisitions Published: Tuesday, January 8, 2013 2:40 pm By: Ramón L. Rivera, President & CEO

Mergers and acquisitions are today a common practice as companies try to improve their competitive position in a global marketplace. Research indicates, however, that many mergers have not resulted in the expected benefits, in part because organizations have neglected the human aspects of the change. There is a consensus that human issues are many times misunderstood, poorly managed, and viewed as irrelevant to the strategic planning process. We argue that if mergers and acquisitions are to be successful over the long term, the human dimension must be integrated into the planning and execution processes for achieving the proper integration of two companies.

A recent study conducted by the Industrial Relations Centre of the Qeen's University at Ontario, Canada found that there is a set of weaknesses commonly found in a typical merger process. Those weaknesses can be grouped as follows:

  1. Neglect of psychological issues: The psychological effects of change on people are not given adequate consideration when companies are integrated.
  2. Inadequate communication throughout the merger process: Employees are not kept informed during the integration process. Although people fear that their jobs are at stake, they typically have very little reliable information on which to base decisions.
  3. Culture clashes among the two organizations: Employees with different values and work styles are frequently required to work together with no structure for resolving differences.
  4. Ambiguous company direction and unclear roles and responsibilities: Senior management is typically slow in articulating the vision and mission of the new merged organization. After downsizing, staff are left to deal with more work and have little sense of direction from which to determine priorities.

Mergers and acquisitions represent significant and potentially emotional and stressful life events because they can change an individual's working life significantly but fail to provide the individual with any control over the event. Some common merger stressors include uncertainty, insecurity, and fears concerning job loss, job changes, compensation changes, and changes in power, status, and prestige. Employees may experience job/career/life dissatisfaction, lower self-esteem, depression, and anxiety. The result may be higher turnover and absenteeism and substandard performance levels.

People exhibit relatively consistent patterns of reaction to a merger. Individuals typically become withdrawn and preoccupied with their own survival, and organizations tend to withdraw into crisis management, which often involves secrecy and centralized decision making: in most cases this organizational response exacerbates the negative impact of the merger on employees. Executives may be optimistic about the merger, because they have more control over the situation and better access to information. The majority of staff, on the other hand, are typically suspicious about the change.

The ease of integrating the organizations will be affected by the compatibility of the two cultures, the strength of each culture, and the type of merger. A corporate culture provides employees with identity and stability; they tend to be committed to organizations with strong corporate cultures, which makes the merger process more difficult. Employees typically emphasize or exaggerate the differences between organizational cultures; they tend to perceive that their way of doing things is superior to the style and practices of the other company. Distorted perceptions and hostile feelings toward employees from the 'other organization' may become common, and failures are typically attributed to the other company. The result may be post-merger conflict, or 'culture clash.'

At QBS, we have been supporting complex mergers and acquisitions for around twenty (20) years. Let us take a look at a set of key best practices and lessons learned from five (5) of those cases, which resulted in successful transitions:

  1. Include behavioral specialists in pre-merger discussions. In the strategic planning phase, those experts should assess the corporate cultures of the two organizations to identify areas of divergence, which could hinder the integration process. Communication methods, compensation policies, skill sets, and company goals need to be assessed. Before reaching a deal, the companies can agree on what elements of their respective cultures should be retained and how they will rectify significant differences.
  2. Identify and address employee concerns early on. Elicit information about employee perceptions and concerns and allow the new management to create a more appropriate integration plan, develop tools to minimize employee stress and send a message that the organization truly cares about its human capital.
  3. Provide a realistic merger preview and communicate continuously. All employees must be made aware of what the merger is meant to achieve, why it is important, what the organization will look like in the near future, and how they will likely be affected. When employees know what to expect, they are less likely to suffer from stress and resist the change. The value of open and honest communication methods at all stages cannot be overestimated; employee communications must continually keep people up-to-date on the progress of the merger. Employee participation should be sought whenever possible.
  4. Develop an Integration plan. Initiate a detailed integration plan for merging people, by identifying individuals crucial to the long-term success of the new company and creating incentives to help retain them; developing and communicating the new organizational structure; implementing downsizing initiatives that will minimize the adverse impact on the organization and individuals; addressing employee stress through counseling and support services; and merging the two organizations' policies and processes to complement the new structure and reinforce the new values of the company.
  5. Manage downsizing with care. If downsizing is carried out properly, displaced employees will feel that they have been treated fairly, employees that remain with the organization can feel proud to work for the new company. 
  6. Consider that it is impossible to over-communicate throughout the merger process. Employees have an almost insatiable desire for information, and misinterpretation and rumors are very common. Communication is crucial even when there is nothing new to say.
  7. Do not make promises that may be impossible to keep. It is dangerous to make any commitments too early in the merger process because unforeseen circumstances will inevitably arise and require unanticipated actions that could damage the credibility and integrity of senior management.
  8. A ceiling should be placed on voluntary resignations by job category and location. Keeping headcount under control is vital to managing the work force throughout the merger process, so that operations continue to run smoothly.
  9. Focus on the business and the people staying with the organization. Although it is important to ensure that people leaving are treated fairly, it is also crucial that those who are staying with the organization are given adequate attention and direction.
  10. Careful attention must be given to the staffing process. It is crucial for the morale of employees and the credibility of senior management that the staffing process be perceived as fair. Employees should be involved in the process to increase its acceptance, and it should be conducted quickly so employees know where they stand.
  11. A centralized structure is necessary. It would be too difficult to control the change process in a decentralized company: centralized structure helps ensure that decisions are made quickly and objectives and actions are aligned.
  12. It is important to look for and address signs of employee stress. Managers should be aware of the merger syndrome and be able to recognize signs of stress or work overload. Senior management should acknowledge stress indicators and take time to celebrate small accomplishments or important events in the merger process. These stress relievers will serve as team-building exercises, help reinforce the value management places on employee commitment, and generate excitement about the new organization.
  13. Develop employee policies carefully and expeditiously. Although a 'best of both' approach to policy development is the easiest method, it can be very expensive. Simply selecting the most generous policy from the two companies in order to please employees and proceed quickly may be too costly. Merging organizations must take the time to blend their policies and think of what is best for the new organization.

The merger should be seized as an opportunity to make performance-enhancing changes. There is no better time than [during] a merger to ask more of your people to put in extra changes that will turn the new organization from a good company into a great one. Employees expect change as they go through the merger process and are therefore more open to new ways of doing things. Understandably, most companies try to get the merger over with as soon as possible, but they should use the event as a time to implement better ways of doing things and set higher standards of performance.

Mergers can be used to create a stronger and more resilient company. The human aspects of mergers and acquisitions should be accorded the same emphasis and attention that is usually given to financial, legal, and strategic concerns. The people strategy must stress honesty, clarity, and a feeling of involvement by employees. Carefully designed integration programs need to deal with communication, transition management, organizational structure and staffing processes, and the development of common policies and practices.

Copyright 2013 QBS, Inc.

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