Mergers and acquisitions have already become common features of business, such transactions are made by both global companies and small local ones. However, according to experts, only about 20% of them achieve their goals … Often, the organization being bought is rejected as a foreign body, corporate cultures turn out to be incompatible. If top managers have made the decision to integrate, what strategy should the HR director follow in order for the merger/acquisition to be successful?
What is the purpose of mergers and acquisitions?
First of all, in order to increase the value of the company, as well as its profitability in the short and medium term by:
- expanding the portfolio of goods/services – adding new (complementary) categories/brands;
- penetration into new markets (segments);
- savings – cost reduction (research and development of purchased products / services);
- purchase of competitive advantages (for example, a distribution network, unique technologies, employee skills, etc.).
The most important success factors are organizational integration and human capital.
Why do most mergers and acquisitions fail? Among the most important reasons, experts name the following:
- difference in corporate cultures of companies, difficulties in integrating human capital;
- errors in asset valuation (due diligence);
- a large debt of the acquired company, which is a heavy burden on the absorbing organization;
- the inability of the management team to achieve the expected synergy (for example, due to too much diversification or the size of the acquired company);
- excessive concentration of management attention on integration processes to the detriment of the core business.
Procter & Gamble (P&G) has a long track record of successful, and, importantly, friendly acquisitions; in particular, two transactions took place in 2004–2005: 1) takeover of the integral property complex Olvia Beta Cleaning Products Co (hereinafter referred to as Olvia Beta) with TM Gala, Only You, etc.; 2) merger with the global company Gillette (TM Gillette, Braun, Duracell, Oral-B, etc.).
Let’s look at these examples:
- correlation between business strategy and HR strategy;
- the role of HRs in integration: key tasks, expectations and difficulties.
Number management.
When conducting mergers/acquisitions, traditionally (“by default”) it is considered that only the heads of the acquiring company should remain in the new structure. But such a policy often leads to the loss of talented high-level managers. The CEO of our company announced a fundamentally different strategy: the conscious formation of the most effective teams, the selection of the best candidates for the roles, regardless of which of the merging corporations they “come from”.
We did not formulate any special criteria, did not conduct additional assessment procedures and selection interviews. When making personnel decisions in the process of integration, we proceeded from the principles of mutual respect and trust. Decisions were made by representatives of both companies collegially based on the results of a discussion of the results of work and assessments of employees in the “pre-integration” period. At the same time, the desire and readiness of each of the candidates to work in the new organization was taken into account. This is a very important point, because as a result of integration, a new company is actually created, so each person makes a new decision about choosing an employer. We tried to take into account all individual circumstances and with due respect for the choice of employees.
In the case of Olvia Beta, the main focus of talent management was on the quick and painless training of managers and specialists of the acquired company in P & G work processes. Since the management systems and key business processes of the organizations differed significantly, it took us some time to evaluate the performance, professionalism and potential of Olvia Beta managers.
It should be noted that during the implementation of the integration project with Gillette, neither in Russia nor in Ukraine were there any large-scale staff reductions (there were isolated cases). Most of the reductions affected the staff of headquarters in America and Europe.
During the takeover of Olvia Beta, performers and mid-level employees also did not quit – they were taken out of the state (under outstaffing programs), that is, they went to work in a service company, keeping their jobs. In those isolated cases when employees were nevertheless released, we provided people with material support and helped in finding a new job.
Rewards. At the time of the merger, Gillette adopted a grading system, so the process of harmonizing the remuneration systems of the two companies did not cause any particular difficulties: transparency and understandability of approaches for employees was provided, one might say, automatically. Compensation packages, although different, were comparable. Therefore, in this case, the main (and very interesting) task for HRs was the development of a system of benefits and compensations that would be unified for the entire merged company. This is a meticulous and “delicate” work, which involves analyzing the smallest elements and assessing the value of each of them for employees.
For example, we converted certain types of compensation specific to Gillette into cash, and revised some in a different way. We are often asked if external consultants were involved in this work. We believe that a qualitative assessment of the real value of most benefits for employees can only be made by people “from the inside”, since it is largely determined by the internal culture of the company. During the transition period, we carried out extensive explanatory work (including individual), as a result of which all employees were convinced that the amount of remuneration has not decreased. Moreover, most often people even won.
At Olvia Beta, at the time of the takeover, the position grading system was not used, so we had to not only do a lot of work on the assessment of positions, but also find appropriate analogues for them in our company, and then “fit” them into the P & G structure.
Adaptation and career management.
We understood that during a period of drastic changes people experience emotional shock, so we sought to create conditions in which they would feel comfortable, and patiently waited for the gradual restoration of maximum performance.
Each employee (especially the key one) of the acquired companies needed to feel as soon as possible that for him personally, working at P & G is a chance to succeed. To this end, a lot has been done, for example:
- “veterans” of P&G (people with 10-15 years of experience in the company) told new colleagues about their personal careers, about the opportunities that open up before them;
- a special website Path to P & G was developed (“The path to a career at Procter & Gamble”), where the “rules of the game” were explained to all new employees: how functions are organized in their department, what competencies are considered key, how performance and potential are evaluated what is important for each type of career, etc.
The career plans of Gillette employees were relatively easy to integrate into the P & G personnel development system, since the main business functions of companies (marketing, sales, corporate finance, human resource management, etc.) were similar. Here, the main task of HRs was to explain to employees the similarities and differences in the personnel development systems of the two companies.
We encountered great difficulties during the takeover of Olvia Beta: we had to organize a real “career experiment” for its employees. Each person needed to be explained how they would fit into our organizational structure and career planning system. For example, the “finance” direction is divided into many subfunctions, so the financier / accountant who came from Olvia Beta had to show the opportunities that open up before him and the resources available for training and development. All “career” issues were resolved on an individual basis: each Olvia Beta manager was assigned a mentor (mentor) from P & G, who monitored how successfully a person adapts to new conditions, how quickly he develops, whether he feels good emotionally etc.
Personnel turnover control.
From the first day we worked together, we included talented key managers (HiPo) from Gillette in our career planning system. This was an important signal for people: their career plans are not collapsing, but transforming, so they will also be able to reach heights in a new environment. In addition, the sheer size of the combined organization opens up even more career opportunities for them.
In the case of Olvia Beta, the main focus was on ensuring the smooth functioning of the business, the integration of companies should not interfere with the normal operation of the plant and sales department. Over the previous 10 years, managers of the Ukrainian structure have learned to work successfully and profitably in the lower price segment, which allowed them to build a unique business model. The management’s strategic goal was to maintain the low cost of Olvia Beta products, its main competitive advantage.
P & G specialists could not fully adopt the experience of a local company in a few months, so the most important tasks for HR were:
- retention of people (planned staff turnover rates should not exceed the average indicators in the “pre-integration” period);
- successful adaptation of employees to new conditions.
At that time, this was the biggest risk factor – without skilled workers, the business would simply collapse.
An attractive system of benefits and compensations could keep irreplaceable specialists at the plant, so we developed a plan to “bring up” the level of remuneration and benefits of former Olvia Beta employees to P & G standards in Ukraine. For three years, we have successfully completed the task.