A company engaged in a merger, acquisition, or joint venture will invariably obsess over planning and preparing its financials, technology, and operations. While these business functions are all important, they all too often dwarf, and sometimes even discount, the most important component of the deal, the people. In order for a merger to be both viable and sustainable organizations must re-shift considerable focus to their workforce.
For many years, HR and “people issues” more broadly have failed to earn a right at the table. There existed a rampant inability for companies to recognize any “hard benefits” from these “soft issues”. This largely resulted from an antiquated view of HR as a mere cost center—the humble home of administration and compliance.
In the past decade, however, a moderate wave of companies, recognizing the importance of a talent management strategy, has begun to gradually siphon off some strategic responsibilities to their HR departments. Some have entirely handed over the reigns on issues such as employer branding, onboarding, recruiting, employee engagement, retention, performance management, training & development, leadership, and succession planning.
Even though HR has finally been given its due day under the strategic sun, its role in M&A, joint ventures, and other special business activities is still largely overcast. However, not strategically involving HR in such special business events endangers the success of any such deal.
In Lausanne Business Solutions’ 30 years of consulting to organizations of all markets and size, we have observed that at least 75% of M&A and joint ventures fail to achieve their objective or create increased value. This failure overwhelmingly arises as the result of the organizations’ failure to consider people issues at the forefront of the deal.
When people issues are overlooked, disaster strikes.
Consider the merger of AOL and Time Warner. This deal stands out as one of the most disastrous mergers of the digital age. In terms of business strategy, operations, and finance, it could not have been a better deal. The reasons for these companies to merge were compelling and no one involved could have foreseen any outcome other than a prosperous one. Why? AOL was hot company growing their customer base at “internet speed” and Time Warner possessed a vast network of high-speed cables perfect for delivering branded media content. Together, these companies would be able to exploit a gold mine of opportunity with their shared resources and customer base.
Alas, AOL Time Warner tanked before the ink dried: The market value of its stock fell from $226 billion to $20 billion. Though many dot.com companies struggled during this time, the fundamental problem of AOL Time Warner stemmed from a failure to consider the people and culture of these two companies before merging.
Contrary to all expectations, AOL’s tech culture did not reinvigorate the complacent atmosphere at Time Warner. Furthermore, while Time Warner had been building silos, AOL had become entirely integrated. This made communication across departments difficult for the merged company. Despite the opportunity to sell to a shared customer base, sales plummeted. In response, the new AOL Time Warner decided to restructure compensation and benefits to reflect shared goals. Instead of motivating employees, this created internal conflict. When sales continued sinking, the companies blamed each other, which further hurt communications, team cohesiveness, and deeply divided the company.
In the end, the major factors which led to the downfall of the deal were 1) a failure to analyze the people landscape before pre-merger to create a plan for cultural integration and communication as well as 2) AOL Time Warner’s inability to reconcile performance goals and compensation. Perhaps if the companies had seriously considered their people challenges, it would not have suffered the largest annual net loss of any company in history.
What role should HR play in M&As or joint ventures?
From a talent management systems vantage point HR must work to align management, evaluate performance management systems, analyze rewards, compare compensation and benefits packages, as well as reconcile talent development plans and reviewing training and development programs.
From a talent management strategy vantage point HR has much more to consider. For instance: Are both companies change ready? What are their respective cultures and how will they unite? What is the new, shared mission? How will differences in hierarchy and corporate structure change? How will this structure affect the organization’s people? How do both companies share information? How do they communicate?
In a sense, these questions show that the people issues involved in any M&A or joint venture lay the groundwork on which everything else can be executed. If the goal of a M&A or joint venture activity is to combine separate entities to create a single high performance business, doing so would be impossible without first establishing a high performance culture. This sort of a culture can only be achieved through adequate research, planning, facilitation, and execution of an HR-led talent strategy. If HR is given the power to align, engage, and crystalize the vision and mission, as well as optimize communication and champion change in the name of integration, any M&A or joint venture process would happen much more smoothly.
Gregory Pontrelli is the President/CEO of Lausanne Business Solutions, a boutique management consultancy that has attracted many high level clients. Have thoughts? Share below! or on Twitter: @gregpontrelli or @lausanneconnect