Mergers and acquisitions of HR Compaq
Mergers and acquisitions have become a common phenomenon in recent times. With the growing influence of Indian companies and their increasing drive for growth, the number of mergers and acquisitions by Indian companies has increased multifold. Indian companies have targeted companies in Europe and America as part of their growth strategy. MNCs have also merged with or acquired companies in India to gain access to the rapidly growing Indian market.
A merger of the size like HP-Compaq or an acquisition like Tata-Corus has implications for the workforce of these companies across the globe. Although the merging entities give a great deal of importance to financial matters and the outcomes, HR issues are the most neglected ones. Ironically studies show that most of the mergers fail to bring out the desired outcomes due to people related issues. The uncertainty brought out by poorly managed HR issues in mergers and acquisitions have been the major reason for these failures.
Literature provides ample evidence of difference in between the human resource activities in the two stages: the pre-acquisition and post acquisition period. Due diligence is important in the first phase while integration issues take the front seat in the later. The pre acquisition period involves an assessment of the cultural and organizational differences, which will include the organizational cultures, role of leaders in the organization, life cycle of the organization, and the management styles. The mergers often prove to be traumatic for the employees of acquired firms; the impact can range from anger to depression. The usual impact is high turnover, decrease in the morale, motivation, productivity leading to merger failure. The other issues in the M&A activity are the changes in the HR policies, downsizing, layoffs, survivor syndromes, stress on the workers, information system issues etc. The human resource system issues that become important in M&A activity are human resource planning, compensation selection and turnover, performance appraisal system, employee development and employee relations.
M&A activity presents a different set of challenge for the human resource managers in both acquiring and acquired organizations. The M&A activity is found to have serious impact on the performance of the employees during the period of transition. The M&A leads to stress on the employee, who is caused by the differences in human resource practices, uncertainty in the environment, cultural differences, and differences in organizational structure and changes in the managerial styles.
Mergers present opportunities and hazards for both the company and the HR manager. A KPMG study showed that 83% of mergers and acquisitions failed to produce any benefits – and over half actually ended up reducing the value of the companies involved.
Consolidation and cost cutting may be great hazards to HR, but the opportunities are tremendous if you can convince the leaders of your value in bringing the combined company together.
That number is only astonishing when one considers how many mergers occur in a year, and how few companies seem to think matters through (particularly cultural and systems methods) and consider alternatives.
One way to get the answers to these questions is to have an outside agency speak with senior leaders, one at a time – or, if that is not possible, to have them circulate a brief confidential survey and present the results at a facilitated meeting. Difficult questions, for example whether there are alternatives to a merger, should be raised as early as possible.
The HR manager may need to raise the issue of culture – how people work, how they think, what they value, and, of some importance, how they view the other organization. If the acquired (or acquiring) organization is viewed with disdain or contempt, these issues must be addressed up front. Likewise, severe cultural differences must be addressed. They can be overcome with attention and work.
The HR leadership may, because of its skill and background, be placed in the uncomfortable but important position of persuading corporate leaders to admit the truth to themselves, and to employees.
or quality concerns. By making changes with facilitated cross-platform teams, HR can help to ensure that the better of the two organizations are preserved.
NEW HR STAFF ROLES
In a role as executive coach / internal consultant, HR staff can also be effective through:
Helping the leaders to agree on a clear and specific set of goals- for the merger, with a focus on tangible, measurable results, which brings misunderstandings and conflict into the open.
Scenario planning – will the merger work if there is a market decline? What will be the responses of customers and regulators?
Exploring options – are there other ways to accomplish the same goals without a merger?
Investigating assumptions – the consultant, as an outsider, is in a unique position to bring out hidden assumptions. This should be done continuously throughout the process, though scenario planning and exploring options are expressly designed to explore and test assumptions.
Rewards – even where bonuses or profit sharing help to increase motivation, the money itself is often symbolic, a measuring stick for achievement. The HR staff should help the organization to set up milestones and celebrate small and large successes along the route to integration, so that people not only feel the progress, but also feel that their achievements are being rewarded.
Integrating initiatives – ensuring that managers are not overwhelmed by initiatives and changes that all seem to come at once.
Watching key processes – often forgotten are key processes such as new hire orientation, training, and even compensation systems. These processes all support or sabotage both the present and desired culture. An HR professional can work to make them support the change efforts.
The growth in mergers and acquisitions (M&A) activity around the world, the volume of capital involved, and the pervasiveness of M&A stand in sharp contrast to their high rate of failure. Human Resource Management has been frequently mentioned as a potential factor in M&A failure. However, conceptual and empirical studies of the role of HR Practices in M&A and its relationship to M&A performance remain scarce.
Many studies have been conducted under the assumption that M&A are homogeneous, but not all M&A are alike–and that matters. For example, acquisitions may differ in their objectives. Some acquisitions aim to reduce costs, while others aim to retain key talent, including scientists and engineers. These differing objectives require the use of different HR practices. Furthermore, acquiring an international firm with the objective of improving both effectiveness and efficiency in the global marketplace will require a focus on the developmental practices of HR, including mentoring, training and creative compensation incentives, as well as intensive consideration of cultural differences.
While globalization increases the number of cross-border mergers between companies from different countries, research on the role of HR practices in these mergers is rare. Clearly, the complex global operation of M&A requires a sophisticated adaptation of human resources, which gives rise to new questions, relevant to theory, research, and practice, about the nature and effects of HR management in M&A. The complexity of M&A in the global environment is summarized well by Very, who stated, “cross-national mergers are a complex phenomenon, sometimes influenced by national cultural differences, sometimes by organizational influences, sometimes by both and sometimes by neither.”
The role of Human Resource Management (HRM) in affecting the success of M&A both nationally and internationally is timely and challenging. One aspect that has not been deeply researched is the human resource aspect. Thus the issues of uncertainty, stress management, distrust, and employee turnover have become very serious issues that often arise in such turbulent times of organizational change. People have become the hidden factor in the merger success. Clearly more research on the role of HRM during the different stages of the M&A is needed, taking into account pre and post stage factors, such as strategic goals, synergy, integration approaches, corporate culture, national culture, leadership, and communication. Several independent streams of management research have studied either pre-acquisition stage or post-merger integration stages. For example, one stream that focuses on pre-acquisition stage examined the relationship between firm level measures of financial performance and the strategic fit between buying and selling firms. Interestingly, a recently published meta-analysis study failed to find a consistent relationship between performance gains and the degree to which the merging firms share similar functions. Another stream of research that focuses on post-merger stage examined the cultural fit of the buying and selling firms and its impact on the success of the merged company, but findings are contradictory and confusing.
In addition, studies have focused on the psychological effects of M&A on managers and employees. However, these streams have given little attention to the role of HR practices in affecting the success or failure of M&A in the national and international arenas. Furthermore, the research about human resource management in M&A is still fragmented, leaving gaps that need to be addressed. The failure to account for personnel issues is surprising since HRM has the potential to play an important role during all stages of M&A. The goal is to focus on HR practices as a major area in M&A. This complex, widespread and growing phenomenon of M&A will require the incorporation of multidisciplinary, multi-level and cross-cultural models and analyses.
The following examples illustrate the challenges faced during M&A and the role that the HR department plays in overcoming them.
TCS – Tata Infotech
This is a relatively recent merger between two Tata Group companies that involved the employees of Tata Infotech becoming a part of TCS (Tata Consultancy Services). Although the merger was carried out smoothly, the issues faced by the HR executives of TCS during the mergerand how they were overcome are as follows:
Consideration of prior experience
TCS had to decide how they would consider the experience of employees of Tata Infotech – should all their prior experience be considered relevant to TCS as well? As the two companies are not that dissimilar, they finally decided to retain the experience of the merged employees.
Designation, Fitment and Pay scales
They had to ensure that the grades/designations of the merged employees were appropriately mapped to the grades/designations in TCS based on their experience. A senior employee of Tata Infotech would definitely not be happy reporting to a junior person from TCS. Their pay scales also had to be appropriately modified to adhere to the TCS salary structure. These issues were dealt with by appropriately mapping the designation and pay scales of Tata Infotech employees to the designations and pay scales of TCS.
The HR department had to decide how they would consider the joining dates of the merged employees since it would have an effect on their chances of promotion, gratuity entitlement, leave entitlement and seniority in the organization. They finally recorded two joining dates for the merged employees in their IT systems (the date they joined Tata Infotech and the date they joined TCS).
Legal Issues, Promotions and Policies
Employees are entitled to gratuity after 5 yrs in the company. So the IT systems should be capable of carrying forward the duration they served in Tata Infotech to TCS. Also, certain policies require an employee to have served in a previous grade for a specified duration to be eligible for promotion, which would not be possible for the merged employees. So such exceptional cases had to be considered.
Induction and Project Allocation
The merged employees had to be inducted into the processes of TCS and had to be allocated to projects based on their education and prior experience in the previous company. Induction training was carried out and the IT systems were updated with the details of Tata Infotech employees.
The acquisition of Satyam by Tech Mahindra is of particular significance in the sense that it not common to see a smaller company acquiring a larger company. Tech Mahindra, a company of around 23,000 employees, whose business was mostly centered around the Telecom sector (British Telecom being one of their major clients) acquired Satyam, a much larger organization of around 45,000 employees, whose business was much more diversified and global.
The entire acquisition process was not a very pleasant experience for the employees of Satyam. The company underwent a major change in its organization structure to align itself with that of Tech Mahindra for ease of integration. A lot of downsizing had to be done in the process as there were many redundant positions in both companies.
The HR department was faced with the challenge of retaining employees and their clients, and restoring their faith in the company. The following are some of the initiatives that were undertaken to address these issues –
Sales Reboot Campaign
The senior management conducted a 3 day program for its sales force and gave them some much needed motivation to pursue new clients.
Special Induction Programmes
The Satyam scandal tarnished the image of the company. Employees quit the company in large numbers, and it was almost impossible to recruit new employees to fill up the vacant positions. So Satyam advertised for these vacant positions within the organization. The members who were willing to join were given an intensive 2-week induction program in Sales and other functions so that they could be quickly be made productive and posted in regions abroad.
Recognition and Reward Schemes
As the company initiated a variable pay cut for all employees, the senior management had to devise new strategies to motivate and retain their employees. They decided to identify Star Performers and ‘Excel-lerators’ within each division and give them special recognition for their efforts.
Since there was a lot of anxiety and uncertainty in the minds of the employees, the HR department created a communication channel between them and the top management of both Satyam and Tech Mahindra. This was done via many forums such as Blogs, “Direct from the Board” Webcasts and several Open House sessions in an informal environment.
Having worked in TechMahindra, it was easy to see the role played by HR in the integration of the two companies. HR facilitated the movement of Satyam employees into TechM offices by organizing get-togethers and other events to promote bonding between employees of TechM and Satyam. They also leveraged the company’s IT systems by setting up blogs and web conferences and chat sessions between employees of the two companies as well as with senior management. They also organized cultural and sports activities such as singing competitions, cricket tournaments, etc. to promote bonding and camaraderie between the two sets of employees. On the anniversary of the acquisition, the HR team distributed fliers and stickers to all employees advertising the successful integration of the two companies.
Tata Steel (TISCO) finally acquired the Corus Group in 2007 after a long running saga. But their problems did not end with the acquisition. The combined entity had 84,000 employees in 45 countries with 24,000 employees based in the UK. Community, UK’s largest union of steel and metal industries workers had opposed the acquisition stating that it would oppose any kind of job cuts in the UK steel maker. There was political pressure on Tata Steel to guarantee the future of Corus in the UK. The executive director of Tata Sons issued several statements that assured the unions as well as the government that jobs would not be cut and only after that did the unrest die down.
There was a great deal of suspicion on how well the two entities, viz., Tata Steel and Corus plc would integrate in the post acquisition situation. This concern was expressed since the culture and perspectives of the two companies and the people are seemingly very different from each other.
Ratan Tata however, was confident that the post acquisition management will not be too difficult as the two organizational cultures will be effectively integrated. Ratan Tata had said that he was confident the two companies will have “a cultural fit and similar work practices.”
He said, “Nearly 30 years ago J.R.D Tata had lured away a young engineer from Corus’s predecessor company, British Steel, to work at Tata Steel. That young Sheffield-educated engineer – Sir Jamshed J. Irani (knighted by the Queen 10 years ago) – was Tata Steel’s Managing Director until six years ago.”
Tata Corus has made developed some management structure to deal with the smooth operation of the two entities. It has also adopted several system integrations in both the entities to smoothen the transactions between the two entities. Tata Steel has formed a seven-member integration committee to spearhead its union with Corus group. While Ratan Tata, chairman of the Tata group, heads the committee, three of the members are from Tata Steel and the other three are from Corus group. Members of the integration committee from Tata Steel include Managing Director B Muthuraman, Deputy Managing Director (steel) T Mukherjee, and chief financial officer Kaushik Chatterjee. The Corus group is represented in the committee by CEO Phillipe Varin, executive director (finance) David Lloyd, and division director (strip products) Rauke Henstra.
The company has also created several Taskforce Teams to ensure integration specific set of activities in the two entities for smoother transaction. For instance, the company has created a task force to integrate the UK/EU model in construction to the Indian market.
The company has also created an organizational structure for Group Strategy Function. There will be three groups in this function to undertake three activities viz., Strategy Development, Strategic Modelling, and Industry Group.
Several other integration initiatives were also taken. Tata Steel’s Continuous Improvement Program “Aspire”, with the core values of Trust, Integrity, Respect for individual credibility and excellence, and Corus’ Continuous Improvement Program “The Corus Way”, with the core values of Ethics, Integrity, Customer Focus, Selective Growth and Respect for people were a close match so Tata used a Light Handed Integration Approach.
TAS, the famous leadership development program of the Tata Group, is being rolled out in Corus.