For a growing number of businesses, merging with another company is an effective business strategy. A merge provides an opportunity to enhance resources, acquire top talent, expand capabilities, broaden market reach and overall, achieve a competitive edge.
For companies where expertise and local relationships are a vital part of the business, such as community banking and certain franchises, merging with a competitor is a much more effective approach to accelerate growth in a new market than it would be starting from scratch.
Although there are many benefits, merging has its share of challenges. According to the Society of Human Resource Management, an estimated 70 to 90 percent of all mergers fail to reach their financial objectives. Why? One of the top reasons is that Human Resources is not included early enough in the process.
While employees are not a part of a balance sheet, they are an essential part of the merge process.
As executive management works out the financial details of the sale, Human Resources is charged with navigating the costs and complexities of staffing, benefits, employee relations, communications, compliance, liabilities and legal issues. All areas that have an impact on a company’s bottom line.
4 Ways HR Delivers Value
Studies show that the more capable an HR department is, the greater the chance of a successful merge. Here are four important areas where HR adds value.
Building Trust. During a period of uncertainty and transition, consistent communications helps to build trust. HR can keep employees informed during the process and provide feedback loops to address concerns and respond to opportunities.Aligning Workforces. According to Harvard Business Review, on average 30 percent of employees are redundant as a result of a merge. HR can assess talent requirements for the new organization’s workforce and reduce redundancy.
Managing Costs. According to a Deloitte study, “Driving M&A value through HR integration,” mergers are successful when HR plays a leadership role from the beginning of the process.
Protecting Against Liabilities. A merger can reveal a whole new set of employment laws and regulations. Human Resource professionals can help to prevent costly surprises, especially during the due diligence process, by reviewing employee records, such as compensation history, Form I-9, affirmative action plans, employment contracts, OSHA audits, and any open equal employment opportunity claims (EEOC) and litigation records.
If you purchase a company, do you inherit all of the liabilities and employee violations as well?
In addition, HR can investigate state and laws that may impact employees of the organization, such as “successor” laws that address inheriting liabilities as part of a merge.
Every business is unique to its culture and while there are no magic formulas for melding two companies, there are guidelines to consider and proven strategies. Here are a few areas where HR can help.
Assess cultures. How will the management styles impact the new organization? During a merge, there is no such thing as business as usual.
One of the most well-known examples of the importance of combining cultures is between Daimler-Benz and Chrysler. Post merge, Daimler’s reserved, structured approach clashed with Chrysler’s casual, entrepreneurial culture and made it difficult for the companies to unite. When joining the workforce of two uniquely different cultures, look for common ground. It may require developing a completely new internal system and structure.
Determine talent and staffing needs. Clarify roles and responsibilities and establish clear expectations. Create employee profiles based on experience, geographic location, roles and compensation.Assess employee benefits, incentives and compensation. A merge presents an opportunity to assess employee benefits and compensation and tailor packages specific to the new organization. Identify gaps and align pay structures, stock options, and PTO, as well as retirement benefits. Review incentives and consider affordable alternatives like flexible schedules, remote work opportunities, free parking, and educational programs.
Evaluate HR operating systems. Assess the HR management systems, such as payroll, HRIS, data management tools and technologies and shared services of each organization.
During Due Diligence:
Assemble a Team. Management defines and shapes the culture of the new organization. Enlist the support of leadership to build teams from across all areas to educate and motivate employees. Involving employees creates a sense of ownership in developing the framework of the new organization.
Develop a Communications Plan. Create an action plan to guide the HR process during the merge. A merger is a time of change and uncertainty. Employees are most interested in issues impacting their jobs and health benefits. Avoid confusion and control rumors by keeping employees informed during the process.Focus on the positive and discuss how things will be different. It’s likely there will be a redundancy in roles and a potential layoffs and relocation. Turn challenges into strengths. Perhaps more locations will provide more opportunities for jobs, education and improved technology.
Provide Training and Education. Training can balance out skill levels and accelerate the integration of employees of the merging company.
Consider Outsourcing HR with a CPEO. The daunting tasks of defining benefits, compensation and contribution plans, payroll, workers’ compensation, as well as the evaluation of liabilities, may be too complex and require outside support. A CPEO, Certified Professional Employer Organization, can be a valuable partner by providing expert counsel during the transition and beyond. The certification is important because it protects the company from any unexpected fines or taxes as a result of an error. In addition, CPEOs can support benefits and unemployment administration, recruiting and hiring, compliance, family and medical leave administration, employment taxes and drug testing.
Redefining Business As Usual
During a merge, the value of Human Resources goes well beyond policies and personnel. From integrating workforces, maintaining productivity, managing costs and protecting the company from unexpected liabilities, HR plays a pivotal role in redefining the new organization’s business as usual.