Human Resources Planning in Mergers and Acquisitions - Term Paper Example

? Human Resources Planning in Mergers and Acquisitions Mergers and acquisitions (M&A) is a type of corporate strategy where two companies are consolidated to form a new company in case of merger and one company buys the other in case of acquisition. Early involvement of the Human resources team i.e. involvement as soon as the companies start evaluating the possibility of merger or acquisition and the probable targets, is one of the most important ways by which the M&A can increase the possibility of success of the merger. This project deals with the role of the human resources in cases of merger and acquisitions. Introduction Mergers and Acquisitions lead the way for enormous growth but it is not possible without having a competent Human Resources team which plays a critical role in making or breaking the M&A. Many businesses do not consider the human resources aspect as important to the M&A strategy but research shows that the biggest problems incurred when making a M&A transition are increased attrition, poor communication, key employees giving up their job, adjustment problems to new method implemented and cultural incompatibility. Though Mergers and acquisitions aim at the growth of the organizations but in reality, these are extremely difficult corporate practices in the sense that the expected synergy is often not achieved and follows a complex and exhaustive process of strategy implementation. The reasons behind a merger may vary for different cases, so the Human Resource involved should make a good assessment of the M&A process about the objectives behind the merger. Discussion A business needs to consider the following critical factors for a successful transition after the Merger & acquisition takes place: Pre-acquisition Due Diligence Audit: The due diligence portion of an M&A comes after the purchasing company makes the formal offer of purchasing to the other company. The management from the purchasing company undertakes an assessment to evaluate the financial as well as the strategic aspects of the deal. The potential suitor company evaluates the benefit structure of the other business so that the Human resources from the purchasing company specifically assess the benefits structure of the other company to find out if there are any existing or potential issues running in the latter which may cause a loss of a significant amount for the company as an offering. These problems may be any health insurance package or any pension plan which are not properly funded, the cost of employees’ compensation being not under control or pending employment lawsuits all of which may cause loss for the company after the merger. Every aspect of human resource should be considered to find out if the target company is compliant in their working with recruitment and manpower planning, compensation program, training and development program, Human resource information systems, Government compliance, employee relations and safety and environment issues. The due diligence should be carried out in areas of potential exposure so that action plans can be recommended when the deal is closed (Cartwright and Cooper, 212). Employee concerns: Human resource plays a vital role in the process of altering both the companies so that they can work together. This process may take a long time to be completed and adapted by all the employees of the company. When a Merger or an Acquisition takes place, the structure and working of both the organizations undergo some changes like altering departments, combining teams or eliminating unnecessary positions. In this process of change, the Human resource plays an important role in helping the employees adapt these changes. Human Resources communicate these changes to the employees and also clarify any queries or issues arising out of these changes (Gaughan, 9-10).They provide an avid description of the new roles and responsibilities the employee in the altered organization structure. Additionally, the HR team designs a unified process to deal with the arising human resource issues. They create, implement and review new policies as well as communicate these policies to all the employees’ companywide. This ensures that the employees understand the altered or newly created policies of the company. After the merger or acquisition is completed, the compensation and benefit plans of the company are reviewed and communicated to the employees. The Human Resource reviews and designs the remuneration package comparing it with that in the competitive players in the market so as to ensure competitiveness. The Human resource also completes staffing and manpower planning for present and future uses, merge training and development programs and implement employee relations programs (DeNoble, 112). Cultural Integration: Human resources help to identify and plan how to make the culture of the two companies compatible when integrated in the new merged company. The human resources should have an in depth knowledge of the culture of the company they are working in and also study the prevailing culture of the other company before the M&A takes place. This helps them to bridge the cultural difference gap between the workers of the two companies. The cultural differences may arise from different factors including the way issues are handled in the organization, the way the organizations measure success inside the organization, the benefits the employees get such as work life balance or insurance benefits, the management styles adapted by the two organizations and the prevailing attitude of the employees towards the business and the industry they work in (Straub, 109). Many of the ways of the company is likely to change after the Merger or Acquisition has taken place as the style of business and values of the companies are likely to differ. The HR should bring in the change in the cultural style so as to make it easily adaptable by employees who are retained from both the companies. Combining the different cultures of the two companies is not an easy task and is met by resistance from the employees wherein employees tend to disagree with the other company’s business processes and defend the business methods that were followed by their own company. But despite the different issues, cultural integration remains one of the major deciding factors for making the M&A successful (Giffin, 6-7). Process Integration: Process integration is done by the Human Resources to improve productivity and standardize the business procedure. After the M&A, it is necessary to abandon the redundant methods that were previously followed in both the companies. When one firm tries to centralize the control over the other firm, this may lead to conflict between the employees and problems such as higher absenteeism and lower productivity is likely to arise. So the HR should train the designed business methods and structures to all the employees. They should integrate the processes including the incentive plans, compensation structure, and appraisal and performance management system in such a way that it retains the valuable methods of both the companies. Communication: The Human resource plays a crucial role in maintaining a delicate balance between creating an environment for change and providing a stabilizing feeling to the employees. During M&A activities, employees often display uncertainty, frustration, psychological withdrawal and anxiety. Research shows that after the acquisition, 47% of the employees in the acquired company tend to leave the company within the first year and 75% of the employees are likely to put down their papers within the first three years after the acquisition (Galpin, 63-66). Transition management is done to deal with these kinds of negative reactions from the employees and rebuild their work balance and behavior so as to prevent the merger from being a failure. The preliminary intervention of the HR should be to provide emotional support to the employees followed by aiming to create a positive environment by keeping realistic expectations from the employees and increasing the level of certainty in the organization. Manpower Acquisition & Retention: When an M&A takes place, the team creates a new organizational structure considering the business objectives, geographic locations, market considerations, redundancy elimination and parallel system versus merged system. The Human Resource team does a talent assessment focusing on talent retention and maps the employees to the positions according to suitability. The Human Resource also identifies the key retention factors that would make an employee stay in the organization. Once the positions have been filled with the existing employees, the HR would focus on acquiring new talent for the positions left unfilled either because no suitable employee was found to fill the position or because suitable employees turned down the position. Then The HR team creates a retention-bonus program and a severance plan to be used in the transitional phase. The team draws the plan such that they are unbiased and equitable with the objective of retaining the employees (Davis, 19). Conclusion To summarize, a Merger and Acquisition may fail due to lack of effective human resource planning. Many Mergers and acquisitions have failed because of people related issues. There may be issues such as loss of key employees, the disagreement of Management regarding the strategies of the company, inability to integrate people and processes, clash of different cultures, confusion among employees about what was expected from resulting in loss of motivation. It is important for the HR to understand the vitality of creating the right synergy of the values, processes and employees of both the companies under the merger or acquisition. The HR should not force the changes into the system too early before the employees are ready to adapt to it. If the changes are implemented too soon after the merger takes place, it is likely that the merger will fail in long term. The key to effective business planning is to find a delicate balance between the engagement of the employees and the efficiency expected from the business. The HR should design the changes in the management, policies, procedure and the physical structure after clearly assessing the flexibility level of the employees. The HR team should try to retain efficient employees and not cut down on workforce arbitrarily. The Merger and Acquisition process is determined to be a success when the following aspects are met i.e. strategic, management, operational, marketing, financial fit is achieved. To achieve this, a number of necessary changes are to be implemented in the organization. It is important that changes are made when two different companies come together to work as one, but the HR should try to capture the synergies of the merger. The manner in which the changes are introduced and infused into the business is one key point on which the success or failure of the merger or acquisition depends. Recommendation The Human Resource team plays a vital role in integrating new employees into the organization, especially in the cases of an acquisition, where a company purchases another specifically to get the employees. In all cases of merger and acquisition, it is critical to involve the Human Resource from the beginning of the Merger & Acquisition preferably from the conceptualization period. As the management should make the team participate actively in the M&A process, so it is important for the HR professionals to be well educated in the domain. The HR should be well educated about the M&A processes, proactively delve into researching about the business to be merged with or acquired so as to address varied topics like the policies and procedures, planning, job description, payroll, training and development and so on. If the company thinks that its Human Resource team is not strategic enough to be involved into the process from the beginning stage, then the company should consider ways to improve their Human Resource as a strategic player. This may be done by engaging the HR in practicing high level counseling and focusing the HR on critical topics related to Mergers and acquisitions like the methods of developing an efficient workforce, strategic planning, long term incentive plans etc. The HR personnel should be made capable enough to understand critical topics like how the functionalities of the business to be acquired, the marketing process, the goals of the company, the financial and operational activities, product/service development process, competition in the market as well as where the company stands in terms of the competitive advantages. If the Human Resources team gains an increased understanding of the underlying concerns in a merger or acquisition and successfully integrates the solutions into the company staring from the transition phase, it is likely to be a crucial step towards preventing an M&A to fail. Works Cited Cartwright, Sue and Susan Cooper. Mergers & Acquisitions: The Human Factor. London: Oxford, 1992. Print. Cartwright, Sue and Susan Cooper. The Psychological Impact of Merger and Acquisition on An Individual:A study of Building Society Managers. London: Oxford, 1992. Print. Davis, Keith and John W.Newstrom. Human Behavior at Work. New York. McGraw Hill. 1977. Print. DeNoble, Aston & Thomas Gustafso. Planning for Post-Merger Integration-eight lessons for merger Success. London. Oxford. 1992. Print. Galpin, Timothy. The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level. New York. Jossey-Bass. 2007. Print. Giffin, Adam and Jeffrey Schimdt. Why HR Can Make or Break Your M&A. Web. 8. Nov. 2013. Straub, Thomas. Reasons for Frequent Failure in Mergers and Acquisitions: A Comprehensive Analysis. Auckland. Springer. 2007. Print. Gaughan, Patrick. Mergers, Acquisitions, And Corporate Restructurings, 5Th Edition. India Wiley India. 2011. Print. Read More