Article "What
Matters Most - Communication with Employees Is Key to a
Successful M&A"
"What Matters Most
- Communication with Employees Is Key to a Successful M&A"
By: M. Beth Page
A merger and acquisition is complete when the integration of the
two companies is complete, not when the deal is announced to the
marketplace or consummated according to a legal or financial
transaction. Mergers and acquisitions (M&As) are a significant
activity for many organizations. Yet most mergers are not
successful, primarily because the "merger of two organizations
is actually a merger of individuals and groups," according to
Buono and Bowditch, authors of The Human Side of Mergers and
Acquisitions: Managing Collisions Between People, Cultures, and
Organizations.
A merger means that two previously separate organizations are
combined into a third, new entity. An acquisition involves the
purchase of one organization for incorporation into the new
parent firm.
Too many companies enter into M&A activity without recognizing
the impact on the organization and the overall affect on the
human element within the two merging companies. M&A activities
that do not meet corporate objectives can result in lost
revenue, customer dissatisfaction, and employee attrition
issues.
M&A researchers, consultants, and internal practitioners agree
that using transition teams, an integration manager, and a
comprehensive employee communications strategy rank among the
best practices. Supporting best practices include; implementing
strong communication skills, having an unwavering commitment to
the integration, being open with employees, and making visible
movements towards integration milestones and 100-day goals to
help increase the success of merger and acquisition activity.
M&A integration examines all the tasks and plans required to
successfully bring the two companies together. When an intended
M&A transaction is announced, employees of both companies expect
change. The early days following the deal's close are a critical
time for the company to initiate integration of the
organization, processes, people, and systems.
Focusing on M&A's Human Dimension
One of the most important resources a target organization has is
its talent pool, yet the human dimension receives woefully
inadequate attention during M&As. Fail to pay attention to the
human dimensions and human dynamics of M&A activity, and you'll
lose key talent. Organizations typically focus on a target's
intellectual property and capital, while failing to recognize
the capabilities and strengths of their employees, even though
the latter enhance their competitive edge. As researchers
Pfeffer and Tromley put it, "See the workforce as a source of
strategic advantage, not just as a cost to be minimized or
avoided."
Layoffs and turnover can and do happen at all levels of an
organization. Approximately 25% of executives in acquired
companies leave within the first year - a rate three times
higher than companies not acquired. That's according to M&A
researcher Jeffrey Krug, who reviewed business literature going
back two decades to calculate that statistic. Another study
shows that nearly one-half of senior managers in an acquired
firm leave within one year, and 72% are gone within the first
three years if retention efforts have not been made. (Tetenbaum,
1999).
To minimize departure rates, consider using alternative
practices. When Wells Fargo made a particular acquisition, the
firm undertook no reductions after an analysis of annual
attrition rates suggested that recruitment would be required
within six months of completing the acquisition.
How can you help prepare an organization for change? Two options
include polling and surveying the employee population, and
developing information and communication strategies aimed at
introducing opportunities for employees to participate in the
change process.
M&A practitioners who respond to questions and concerns about
structural, cultural, and role-related issues, and revise
expectations, will achieve a degree of organizational stability.
The goal of integration is to achieve key actions as quickly as
possible-with "prudent" not reckless speed. One high-tech
company took sixty executives off-line for five months within
two weeks of the deal announcement, in order to integrate and
develop the vision for the combined company. Eventually, 2,000
employees were involved, demonstrating a successful balance
between the need for confidentiality and the need for
communication.
The M&A experts also favor appointing an integration manager
with primary responsibility and accountability for managing the
integration process and acting as a bridge-builder between
companies. Look for visible, internal candidates who are
respected, available for this full-time role, and report to the
business leader.
M&A experts recommend assembling teams of employees from both
parties to participate in integration planning. Transition teams
(internal practitioners prefer the term "integration teams")
that involve employees from both the target and the acquiring
company ensure a successful deal completion. Consider the
transition team a lever to share cultural intelligence between
the two companies. My research indicates that the integration
team should stay in place until 80% of the value capture
intended for the acquisition is in place. Value capture
opportunities include reduced expenses from operating
efficiencies achieved as a result of the M&A.
Both internal and external M&A experts recommend that the new
leadership team be named on Day One. If possible, appoint and
announce other layers of the management structure at the same
time. One expert commented that not announcing the leader on Day
One is a "de-accelerator," but here's a caveat to that approach:
Don't announce a new management structure in situations where
the management team is going to be replaced.
Develop a Strategic Employee Communication Strategy
Both external and internal experts agree on the importance of
developing and executing effective employee communications,
particularly conveying how the transaction will impact
organizational members. Also, get supervisors to talk to people
one-on-one about their future after the change in ownership.
Supervisors need to be aware of, and address, morale and
personal issues individuals will face. Everyone in both
organizations needs to understand the reasons for the
combination.
Make communications open, honest, frequent, early, repeated, and
strategic. Identify constituents, messages, mode, and frequency.
Take all communication opportunities to drive the implementation
of the strategy. Management and others should avoid using
"killer phrases" such as "a merger of equals" (this does not
exist) or "We will only tell employees something when there is
something to tell." Information can always be shared-even if it
is simply the progress of the deal or integration. (Buono &
Bowditch, 1989).
Communication is vital throughout the M&A process. The employee
communication strategy is a clear opportunity to provide
employees with information to reduce uncertainty. Internal
practitioners in particular emphasize the need for meetings with
all employees, and the need for a communication plan for
customers, partners, investors, and the analyst community as
well.
Communication recognizes that the respect for confidentiality of
the process and communication updates can be balanced in M&A
activity, might lead to less uncertainty and insecurity for
employees.
According to Buono and Bowditch, "organizational members are
more likely to react positively when they are well
informed-exposed to unfavorable as well as favorable
possibilities-than when they are forced to rely on hearsay and
speculation." One high tech company communicates directly with
employees immediately following deal closure. The company
recognizes that personal issues such as job security are
uppermost in employees' minds in the initial days following an
M&A announcement. This practice ensures that employee concerns
about job security and their role in the organization are dealt
with first.
As Buono and Bowditch state, "Attention to the details involved
in a merger or acquisition requires a concern for both obvious
and less apparent matters. Indeed, many of the 'little things'
in an organizational combination signal the intention and
concern of the acquiring firm."
Communication figures heavily throughout the entire M&A process
as a best practice. It provides employees with valuable
information and addresses the uncertainty that exists during
this period of transition.
Conclusion
M&A practitioners have rich opportunities to humanize what is
often treated by companies as merely a business and financial
transaction. Focusing on the human dimension of M&A will
significantly impact the bottom-line success, result in less
organizational turmoil, and ultimately determine the overall
success of M&A transactions.
