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The clash and clatter of mighty M&As

As Verizon announces the acquisition of Yahoo! for $4.83 billion and the announcement earlier this month that Japan’s SoftBank buying Arm Holdings, the British smartphone chip designer for £24.3bn, Mary Clarke, CEO of Cognisco, looks at the challenges companies face bringing their employees together.

At the start of this year M&A activity in the UK was experiencing a slowdown[i] due to the uncertainty surrounding Brexit. With the result of the EU Referendum is known, some experts[ii] are predicting a further decline in activity as companies process its potential impact. Yet for several global organisations mergers seem to be very much back on the agenda.  But what are the key challenges for companies going through a merger? 

Some of the biggest and often under estimated challenges in any M&A transaction are people challenges. Law firm Allen & Overy[ii] recently highlighted that in spite of the planning that goes into an M&A transaction, as few as 20 percent of deals achieve the benefits the buyer expected. One of the main reasons for this according to the report is the lack of awareness that goes into managing and planning the complex HR and employment issues involved in two companies coming together. 

KPMG’s M&A survey 2016[i] report stresses that corporate culture should be a key consideration, with 54 percent of executives saying cultural and HR issues are the most consistently challenging integration issues they face. Merging organisations with dissimilar goals, cultures and products presents a major challenge for even the most experienced CEO and HR teams. And with the implications of Brexit and the effects this could potentially have on the global markets still unknown, this challenge is going to intensify further over the coming years. 

In most merger situations, HR teams will typically only have records about the training and development employees have undertaken, as well as historical appraisal information. Most won’t have accurate, up to date information about people’s competence, their (likely & observed) behaviour, confidence and attitude and how well they actually perform in their role. Equally, they are unlikely to have data outlining what aspects of their roles people don’t understand or where their skills gaps lie and what their specific development requirements might be. Such information is vital when the merging organisations work in sectors such as banking and financial services, retail, call centres or rail where people can have a significant impact on reputation, compliance or operational effectiveness. 

Over the last 20 years we have evidenced through our insight and analytics that typically 30 percent of a workforce misunderstands some aspect of their role and continuously makes the wrong decisions because they are confident they are actually right. A rapid identification of these high risk people issues in the early days (ideally before merging) is critical to minimise risks and to build a picture of the accepted behaviours and cultures across the organisation.

We also know through our insight and analytics that a further 50 percent of people have specific gaps in their knowledge, but organisations typically don’t know what these gaps are so cannot remediate them effectively through training and intervention.

Without this kind of accurate information, how can HR ensure that people are in the right roles, and have the right skills and capabilities to perform those roles effectively? It is also impossible for managers to make informed, evidenced based decisions about how best to use their workforce talent and skills, to develop people in a way that fulfils their potential or to be confident that they are making the right decisions if any rationalisation of staff is needed.

In these situations, a good first step is for HR to invest in an initial diagnostic that will provide a baseline of likely behaviours, confidence and understanding against each specific role or function. 

This will uncover what people truly understand, how confident they are in their knowledge and how they are applying their knowledge at work. Crucially, the results will provide people-centred data that shines a lens on the talent and current cultural trends – clearly evidencing competence, but also areas for development and areas of risk – where people may have significantly high confidence and low competence. Managers will be able to see at a glance their top performers and those in need of development and support, and their specific training needs. Companies can provide personalised and cost effective learning, training and support tailored to individuals rather than a one-size fits all approach to training which is costly and can be ineffective. 

It’s not just acquirers who will benefit from this kind of data. If a company hopes to attract a potential buyer – the ability to audit the competence, capability and compliance of staff and demonstrate the value of a workforce in real time will make them a more attractive proposition. Whether a company is buying or selling, having clear people-centred data of the workforce, will underpin the success of an M&A process. KPMG supports this view. Tim Payne, ‎Head of KPMG’s People and Change Practice said: “Particularly when acquiring businesses with high risk or highly regulated activities, acquiring managers need to get comfortable that what they’ve bought is safe, quickly.  Cognisco’s approach allows a rapid identification of high risk people issues, which is why we work with them across many areas of business change.” 

The company also highlights that the most important factor for deal success is a well-executed integration plan and effective due diligence, that includes real-time data and analytics. It’s clear that all companies going through an M&A transaction will have one thing in common in determining a successful outcome, whether they are being acquired or looking to be acquired, and that’s proving the value of their people. Only by having people-centred data can they accurately evidence this and hence make themselves a more appealing proposition.

[i] http://www.cityam.com/243996/uk-ma-slows-further-second-quarter-dealmakers-await

[ii] http://www.cityam.com/244090/ma-experts-brexit-what-means-for-deal-activity

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