Mergers & Acquisition - Managing the HR Issues



HRM, merger, Acquisition, business, markets, financial, legal, Organizational culture, national culture, Power Distance, Individualism Vs Collectivism

Many M&As fail to achieve the desired synergies because the HR issues are not given the importance they deserve. This article explains the importance of HR issues for successful M&As and suggests a few points for companies to ponder on.

In 2003 the value of M&A business in the US was worth $510,866.4. This is much less when compared to the value of merged and acquired businesses in 1998, amounting to $1.2 trillion. Though there are still a large number of companies worldwide that believe in the philosophy of "growing through acquiring", the percentage of failures in M&As has been pulling back quite a few. The decade of 1990s saw a spate of mergers and acquisitions in all the important sectors of business.

However, the success rate of these M&As is estimated to be a mere 30 - 40%. Companies do announce that their mergers have been successful, but they also accept that they have not been able to derive the kind of benefits that they expected to, from a merger or an acquisition.

What can be the major reason for this failure (partial or complete) of mergers and acquisitions? Companies do go through a detailed analysis and due diligence review on all fronts - business, markets, financial, legal etc. Then what is it that is stopping these companies from achieving complete success?

Statistics show that one of the major reasons for failure of M&As is the human resources aspect. Companies which have failed to acknowledge the importance of human resources in their organizations and their role in the success of an integration, have failed to reach the pinnacle of success which was so near... and yet so far. What is it that companies have been missing out on, while planning an integration of businesses? What should they do to avoid any hurdles on their path to a successful merger or acquisition?

View the merger from the HRM Angle

People issue is one of the most sensitive but often ignored issue in a mergers & acquisitions scenario. When a decision is taken to merge or acquire, a company analyses the feasibility on the business, financial and legal fronts, but fails to recognize the importance attached to the human resources of the firms involved. Organizations fail to realize that people have the capability to make or break the alliance. Therefore, it is important for organizations on the verge of integration to analyze the feasibility of the integration on the human resources front.

Organizational culture and the national culture become two important factors in determining the feasibility of integration. For example, the organizational culture of company A might be very open and transparent with free flow of communication in all directions. People enjoy their freedom of working in an informal and friendly atmosphere. On the other hand, company B might be known for its stringent privacy system and strict rules and regulations with marked hierarchical roles. People in this company are used to work in a bound and regulated environment. A blind eye to these differences would render a merger between these two companies, disastrous.

Similarly, when it comes to cross-border mergers and acquisitions, care should be taken to see that the national cultures of the two companies are not drastically different. Hofstede identified a set of cultural attributes that define and differentiate cultures. They can be studied under Uncertainty Avoidance, Power Distance, Individualism Vs Collectivism, Future Orientation and Gender Differentiation. For example, a country like Sweden, which is ranked high on uncertainty avoidance, would prefer a structured and orderly work environment.

On the other hand, a country like Russia, which is ranked low on the same attribute would thrive under uncertainty. If a company from Sweden, characterized by orderliness merges with a company from Russia characterized by uncertainty, it can lead to chaos and confusion. Therefore, a complete feasibility study on the human resources front is important while going for a merger or acquisition.

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