The values and norms of corporate culture determine how employees interact with each other and with the outside world.
This is reflected, for example, in the speed of decision-making, attitude to risks, style and form of communications, etc. A significant difference in the types of corporate cultures of integrating organizations can significantly complicate, or even make it impossible to unite them.
Surveys of M&A executives show that lack of success in integrating corporate cultures often leads to the failure of the entire deal. Despite this, many organizations do not even try to assess the parameters of corporate culture and do not use HR metrics as part of the overall deal KPIs:
- about 80% of companies use formal metrics to assess the success of a transaction;
- only about 40% track HR metrics and “cultural integration” performance metrics.
This situation can be explained by a) the complexity of describing and measuring corporate culture, and also b) its “intangible” (managers traditionally focus on more “tangible” aspects of the transaction – financial, operational, etc.). As a result, most companies feel the negative consequences of not managing the interaction of corporate cultures. However, with a well-thought-out integration plan, “cultural” differences can have a positive impact on the new company, introducing new values, role models and rules of behavior necessary for success.
Purposeful management of the “cultural” aspects of M&A requires significant input from the company’s management and HR department at different stages of the transaction:
1. Stage of assessment and due diligence procedures – analysis of the characteristics of the corporate cultures of both organizations. When analyzing corporate culture, it is important to pay attention to the following aspects of each of the organizations:
- dominant characteristics;
- unifying values of the organization;
- prevailing management style;
- principles of relations between managers and subordinates;
- general criteria for success;
- preferred ways of company development, etc.
After the analysis is completed, it is necessary to identify those differences in cultures that may hinder the process of integration.
2. Deal planning stage – during the strategic sessions, the desired type of corporate culture should be determined, which will allow achieving the strategic goals of the combined company, as well as the corporate and management competencies associated with it. Possible options for integration may be the choice of one of the cultures as the base platform or the creation of a radically new type of corporate culture. Further strategy depends on this:
- Acquisition (corporate culture of the acquiring organization prevails).
- Preservation (the corporate culture of the acquired organization is preserved).
- Reverse takeover (the corporate culture of the acquired organization prevails).
- Transformation (both integrating companies develop a new joint corporate culture).
- Preservation of the best (for each of the aspects, the best option is selected from the two existing corporate cultures, and then a new joint one is formed based on this).
3. Directly in the process of integration – purposeful management of corporate culture. Important tools for transforming corporate culture are:
- employee training;
- explaining the strengths and weaknesses of each of the cultures;
- communications (explaining the features of the target corporate culture);
- thoughtful change management (based on the model of general corporate and managerial competencies corresponding to the chosen type of corporate culture).
4. After the completion of the transaction – strengthening the corporate culture through the introduction of common values. To overcome the inevitable difficulties of the transition period, we also recommend regular open communications. Continuous contact with management provides support for change by reducing uncertainty for employees, strengthening their morale and increasing engagement. All this helps to retain key talent, and therefore increases the likelihood of success of the transaction as a whole.
When integrating two companies, one of the most important aspects of cost optimization is:
- unification of HR models;
- harmonization of policies and practices in the field of personnel management.
The importance of this issue should not be underestimated, since the share of personnel costs in the total costs of a company can reach 40-50%. Accordingly, the effective integration of the HR function can significantly reduce the costs of the company and help it achieve the desired synergy.
Among the main issues in the integration of personnel policies, of course, is the coordination of approaches to monetary remuneration (both fixed and variable), while maintaining internal, external and individual fairness in remuneration. Our experience shows that assessing the maturity of the compensation and benefits function can significantly improve:
1) the effectiveness of integration planning;
2) return on investment in the human capital of the new company (ROI HC).
It is also very important to agree on systems of benefits and non-material remuneration, including:
- corporate pension plans;
- benefits offered to employees and their characteristics;
- work-life balance programs;
- recognition programs, etc.
For example, sometimes the class of company vehicles provided or the ability to work from home/flexibility can be a real stumbling block. When planning the abolition of the old and the introduction of a new system of benefits, one should take into account not only the actual “filling of benefits”, but also the difference in the perception of the importance of employees of both organizations.
To mitigate possible misunderstandings, we also recommend constant communication with employees. Managers at all levels and HR professionals should constantly clarify:
- how the structure of total remuneration will change in the new integrated company;
- what benefits will employees get with the introduction of a new compensation package in case of deterioration of conditions during
- integration, etc.
Somewhat less urgent, however, no less important issues in integration are:
- approaches to the selection and adaptation of employees;
- training and development programs;
- career advancement policies for employees.
When determining the target state of these HR subsystems, it is necessary to take into account not only the realities of doing business in a new company, but also the features of the target corporate culture.
In addition, it is important to keep in mind that M&A deals provide a number of new opportunities to purposefully change the HR function itself:
- transformation of the organizational structure and service model;
- cost reduction;
- improving the efficiency of the HR function through the centralization of individual sub-functions;
- development and implementation of fundamentally new HR processes, procedures, metrics;
- using more mature talent management practices of each company;
- improving the professionalism of HR specialists.
Based on the experience of our company, it can be said without exaggeration that personnel management in mergers and acquisitions is both a science and an art. And those companies that can “hit the bull’s-eye” by masterfully integrating corporate cultures and HR practices will definitely succeed.