It is still the start of the 21st century and as per the predictions, the world is moving at a brisk speed. The people who catches up with the world right now will be able to survive others will not be able to follow them. Same is the case with the companies of the 21st century. Companies today need to be fast growing, efficient, profitable, flexible, adaptable, and future-ready and have a dominant market position. Without these qualities, firms believe that it is virtually impossible to be competitive in today's global economy. In some industries such as insurance or banking, firms may move into new markets. In others such as pharmaceuticals or software technology, firms may work with smaller firms that have developed or are developing new products that they can manufacture and / or distribute more efficiently, while other firms focus on their own internal growth, leadership and development. Regardless of industry, however, it appears that it has become all but impossible in our global environment for firms to compete with others without growing and expanding through deals that result in mergers or acquisitions.
Mergers and acquisitions are increasingly being used by firms to strengthen and maintain their position in the market place. They are seen by many as a relatively fast and efficient way to expand into new markets and incorporate new technologies. Yet their success is by no means assured. To the contrary, a majority fall short of their stated goals and objectives.
There are a lot of reasons for a company to merge with others or to acquire other companies. Some of the reasons are as follow.
§ For the sake of Survival
§ Horizontal Mergers for market dominance
§ Vertical Mergers for channel control
§ Hybrid Merger for risk spreading, cost cutting
§ Growth for world class leadership and global reach
§ Acquisition of cash
§ Move Quickly into the market
§ To Adopt good technology
§ Gain core competency
§ Financial Gain and Personnel Power
§ Talent, knowledge and skills
Regardless of the reasons, there are basic assumptions being made which includes.
§ Pre-planning can help increase the chances of success
§ Mergers and Acquisitions (M & A) are the fastest and the most easiest way to grow
§ Mergers and Acquisitions are difficult to do
§ Creating Synergy is a challenge
§ Molding culture is a challenge
Mergers and acquisitions can be successful but can also leads towards big failures. The mergers and acquisitions are done to grow faster but it is not sure that the result emerges the same as it was thought. Some failure can be explained by financial and market factors, a substantial number can be traced to neglected human resource issues and activities. Numerous studies confirm the need for firms to systematically address a variety of human resource issues and activities in their merger and acquisition activities. In fact, industry research over the last 15 years indicates that 50-70% of all mergers, acquisitions, and other corporate transformations do not achieve their desired level of success, primarily due to people issues.
There are many reasons for the negligence of the human resource issues and activities. Some of the reasons are as follow.
§ Lack of awareness that the human issues are critical most
§ No spokesperson to articulate these issues
§ The belief that they are too soft and therefore hard to manage
§ There is no model or tool to understand and to manage the human issues
§ The focus while Mergers and Acquisitions are on other activities rather than on human issues
§ The Human Resource department in many countries like Pakistan, India etc is not completely taken under considerations.
Experts point out that during a merger or acquisition, human resources professionals should be involved before, during, and after the transaction. HR systems must be aligned, integrated, and differentiated. Research has demonstrated that mergers for companies whose HR practices are fully integrated run smoother and employees remain happier during any changeover.
Selection, performance management and measurement, training and development, and compensation and benefits practices must all fit together to create a whole that is aligned with the new organization's goals. Audits of the HR systems prior to the merger can help identify any unrecognized problems or liabilities. The goal, of course, is to align the HR practices with the new business strategy.
The experiences of companies that are involved in mergers and acquisitions suggest a 3 phased model of Merger and Acquisition activities. The three phases are: (1) Pre-Merger (2) Merger – integration of partners (3) Post-Merger – Advancement of the new entity. While these three stages are applicable to and encompass the larger set of business functions such as business strategy, finance, marketing, distribution, IT, and manufacturing, the issues highlighted here are those that reflect issues most closely associated with human resource management.
The first phase is the Pre-Merger which includes the planning of the merger and acquisition. There are many Human Resource issues along with other issues in the first phase. One of the issues that can be arisen in the pre-merger is to identify the reasons behind the Merger and Acquisitions. As it was described earlier that there can be many reasons behind any merger and acquisition and one of those reasons is to get the talented employees in the organization through merging. Standard Chartered acquire union bank (Merger in Pakistan) is one of the most crucial one in Pakistan. One of the reasons behind the acquisition was to get the key talent from union bank that will help them a lot. Some other HR issues that are being experienced by the companies that are into these mergers and acquisitions are:
§ Forming Merger and Acquisition team or leader
§ Searching for any potential partner
§ Selecting a partner
§ Planning and managing the process of M & A
§ Planning to learn from any process
The human resource team is supposed to have some activities in mind while having these mergers and acquisitions. An action or implication that is followed from the above issues can be many. One of the actions would be to let the employee know about the M & A and its effects on the company that will definitely help the employees to be proactive about the actions. A survey report suggests that HR issues are best addressed through comprehensive planning and follow-through. Experience and learning from past M & A activity can help inform the planning and follow-through, but this learning process must also be well managed. Learning, knowledge sharing and transfer are acknowledged as important not only in
M & A activities, but also in joint venture activity. Some of other actions that an HR professional can perform are:
§ Composition of team in an effective manner
§ Cultural assessment
§ Creating practices for learning and knowledge transfer
§ Planning for the merger will help decrease the problems later
The most crucial second phase is known as Integration of partners. This phase include a variety of activities. In general integration is the process by which two companies combine after a merger or an acquisition is announced and pre-merger activities are completed. The most critical issue of this phase is to select the integration manager. That person should not be one of them who are already running the business, it could be on loan but he should only focus on the particular merger and acquisition. In a country like Pakistan, the integration manager is not given any particular importance and they choose any person from the business for the task which an integration manager should be performing. Some issues other than selecting the integration manager which came under this phase are as follow.
§ Designing teams
§ Creating new structure
§ Retain key employees
§ Motivating employees
§ Managing the change process
§ Deciding HR policies
The implications for the HR manager in this stage are many but one of the most important one is to decide who will stay and who will be leaving. The HR department should be very selective in their task, because the selection of the employees is one of the critical issues at the time of any merger. Many other actions should also be performed by the HR department.
§ Selecting the appropriate candidate
§ Creating new teams
§ Communicating is essential
§ Establishing the new culture and structure
Overall, this second stage of integration in an M & A activity is extensive and complex. Whereas Phase 1 activities set the scene for M & A activity, those in Phase 2 are the ones that make the activity come to life.
Then comes the last phase that is the solidification of the new entity. As the new combination takes shape, it faces issues of readjusting, solidifying and fine-tuning. The HR issues that will be in this phase are
§ Solidify leadership and staffing
§ Assessing new culture
§ Assessing new strategies and structures
§ Assessing new employees culture
Some of the actions and implications of the HR department under this stage are as follow.
§ Creating and evaluating new structure is important
§ Molding the 2 new cultures into each other
§ The concern of the stakeholder should be taken under consideration.
There are numerous conclusions that can be made while talking about the HR issues and activities in mergers and acquisitions. Some conclusions are as follow.
§ HR issues should not be neglected while having any merger or acquisition because Human resources are the real assets of any organization.
§ Many organizations failed due to negligence of HR issues while their mergers.
§ Keep track of the Human issues in all the 3 phases of the M & A, so that no issue remains unfocused.
§ Employee communications, retention of key employees and cultural integration are the most important activities in the HR area for successful M & A integration.
Here are some recommendations for those companies which are looking to have any sort of merger and acquisitions keeping in mind the human issues.
§ Companies should put their best people in charge while implementing M & A
§ HR department should be included in all decision making right from the start to the end
§ The integration manager should be selected very carefully
§ Retain your key personnel