Platt Perspective on Business and Technology

Human Resources and adaptation to change 10: mergers and acquisitions

Posted in HR and personnel by Timothy Platt on March 18, 2013

This is my tenth installment to a series on business and marketplace change and on the impact of this on Human Resources as a department. And as a crucial part of that I also seek to delve into how an effective HR department and its functionalities in turn help to shape the business and its operational planning and strategy (see HR and Personnel, postings 137 and loosely following for Parts 1-9.) This is also the posting where I look into a seventh set of operational and contextual factors that would lead a business to deviate significantly from the baseline models presented early in this series, in Part 2 and Part 3.

The specific shaping factors that I address here, as they would impact on Human Resources and its role in a business, come from that business entering into a merger or acquisition. To keep this discussion simpler and more straight forward, I only assume for either case that two businesses are involved in a merger or acquisition event, and that one is significantly larger and stronger overall in its marketplace and in its financial reserves than the other.

• So if the event in question is a merger, one of the businesses entering into it is a definitively stronger partner, and
• If this event is an acquisition, a larger and more robust business is taking over a smaller business that has up to now been a separate business entity, bringing it in as a part of its overall system.

These assumptions might not strictly speaking be true.

• One business might serially acquire several or even many smaller businesses, with each bringing in a proprietary product or service resource, a customer base or some other gap-filling capability needed by the larger acquiring business if it is to address its operational and strategic goals. In this case, one business might have very systematically standardized acquisition processes in place, which is definitely not always the case.
• As a second deviation from these assumptions, one of the businesses involved might in fact be larger, but be weaker and heading towards even greater weakness – for lack of what the second business involved would bring to the table. So even with a big business/smaller business distinction remaining in place, the smaller and nominally weaker business might wield a significant amount of influence and even control over its partner in this combining.
• For that matter, and here primarily just considering acquisitions, a larger business might acquire not a separate smaller independently run business, but rather a spin-off division or other portion of a second larger business that is trimming back through a sales and divestitures process.

For purposes of this discussion, the primary effect of these and similar deviations from the assumptions I start with, is that they would skew the proportions of influence and control that the HR and personnel departments of participating businesses would play, going into a merger or acquisition. I start out at least assuming a particular balance of disparity of voice and influence for the business entities involved.

• I begin that with consideration of acquisitions, and with a larger and stronger business A taking over and acquiring a smaller business B, that has resources A needs, and that would be easier for A to acquire, than to replicate from scratch.
• A and B each hold at least some complementary strengths and weaknesses, where any weakness in the one could be covered by corresponding strength in the other and where combined, A+B as a single business entity would be stronger overall than the sum of the two businesses taken separately.
• A and B each have their own corporate culture and history, and their own full and balanced table of organization and personnel, and for all basic organizational positions they would need (e.g. they each have their own book keepers and accountants, their own IT technicians and sales and marketing staff, and their own managers and C level officers for each of the principle functional areas such as Finance, Information Technology, and Marketing and Communications, and so on.)

One immediate consequence of any combining is that the new, enlarged business is going to at least potentially find itself holding a personnel roster that is filled with unnecessary duplicates. Some types of position would simply scale up for required numbers in keeping with the increased overall size of the business. Some, and here I would consider essentially any of the C level executive officers but also a wide range of specialists, will show duplication where one of the two candidates for moving forward might be excess. Here, and with an acquisition per se, this can be easier to manage and certainly if a goal is to retain where possible. One of the two Chief Financial Officers going into an acquisition, for example, might stay on in that role for the now larger organization and the other become a senior manager reporting to them, with direct oversight control of the acquisition as a now subsumed business division.

• There are as many ways for this to work out in detail as there are situations where this type of staffing decision would have to be made, but bottom line: decisions have to be made as to who to retain as is, who to retain but with a change in position or title or both, and who to let go.
• And an overriding goal in all of this has to be in retaining the value that this perhaps very expensive acquisition has brought to the table.

I have definitely seen situations where a large business pays a very high price to acquire a smaller business that holds sources of value it needs, only to crush and lose those sources of value by:

• Steamrolling over its corporate culture and its value creating processes and methods,
• Dumping all of its leadership and installing people from the larger acquiring company who primarily see their goal as one of mainstreaming this new acquisition into “proper company ways”
• And by not really monitoring what was happening out of all of this until everyone left over from the now-acquisition had become so demoralized and stymied that they could no longer create the value that made this a worthwhile acquisition in the first place.

I would argue the case that the primary role that HR has in making an acquisition work is to smoothly bring this new part of the organization and its staff in, while studiously preserving the value that it held as a separate organization and that made it valuable to acquire.

In this, most of the Human Resources department coming out of the acquisition will likely be from that larger company A, but some should also come from the acquired company B too. And that definitely includes at least a leavening of manager level HR staff who can continue working with employees from the acquisition to help them make this transition and to help the entire organization experience this more smoothly too. So this is about value creation, but it is at least as much about value retention and preservation too.

• As a distinct warning sign, HR has to look out for employees, and particularly highly rated employees in key positions who suddenly give notice that they have found other jobs and are leaving.
• A part of this process of business acquisition may involve layoffs and downsizings, but retentions are just as important, and long-term they may be more so.
• And if HR is not preparing to limit this loss from the beginning, and if it waits until good people have started leaving, it can only react after the fact with damage control. This is where good acquisitions-integrating Human Resources and Personnel practices really need to be proactive and preparatory.

I began this with a discussion of acquisitions. In a merger and when the two businesses joining are more equal in size, with each bringing in a fuller range of defining value as a complete business, the balance of who stays on, and in what positions shifts. In any merger or acquisition, the goal should be on retaining the right people in the right seats for the long term good of the now larger organization. And as a core HR and Personnel objective in that, everyone involved needs to feel they have at least been listened to, even if they are not retained and even if they do move to a lower position on the combined table of organization if they are kept on.

I am going to conclude this series with one more installment in which I will look at the role and responsibilities of Human Resources in general, and in a changing business environment. Meanwhile, you can find this and related postings at HR and Personnel.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: