08Winter_CoverStory

8/2/2019 08Winter_CoverStory

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cover tor

25 Watson Wyatt Perpective watsonwyatt.com

Maagig PopladCulual Iuin MergersA practical guide to integrationBy Jim McKay,

with Paula DeLisle and Patrick Huang


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M&A Is A reCent phomo o may Aia compai, wih majo

i-Aia co-bod dal oigiaig om Japa, Koa ad mo

cly om mgig mak uch a Chia ad Idia goig gioal

o global. Much lik hi global coupa, h i i o k w gowh op-

pouii i huma, cuom, ucual ad acial capial.

rik lvl ad complxiy a much high i h co-bod dal. Acqui-

a likly o cou uamilia copoa ucu, diig adad i

iomaio availabiliy, laguag bai , uamilia gulaio, complx axaio

ym, culual dic ad di govac gim ad pacic.

Wih h high lvl o ik i h dal, a much mo hoough ad ocud

appoach o du diligc i dd.

I hi aicl, w o a pacical guid o hlp maag wo o h bigg

poblm aa i mg: popl ad culu. I pooly hadld, h ca ul i

mploy u, al dcio ad ogaizaioal gidlock, which apidly ul

i loig ay valu o h dal. tho, wll how h pacical p ha Hrca ak, i quc, o am, aalyz, pioiiz ad ulimaly olv h

poblm i ay mg.

Step 1: Fact FindingBo Hr ca b poiiod o coibu o h ucc o a mg, i mu do

om udamal ac dig o udad h hioy o h mg ad h dci-

io mad o a. thi p coi o wo pa: oiaio ad oul-achig.

Oiaio qui mig wih h ladhip ha pu h dal ogh ad

akig ou big quio, who aw will hap Hr pioii, challg,

ouc ad xpcaio.

What were the primary business drivers or the acquisition?

O pu aoh way, why wa h dal do? Whil ao vay wih ach dal buyig al o poduc, mak acc, gogaphical ach o iduy cooli-

daio Hr mu udad wha dov h dal i od o dmi how h

div ifuc i pioii.

What is the strategy or integrating the acquired frm?

thi c o udadig h lvl ad dph o igaio aicipad om

miimal o ull igaio oc h acquid compay i omally owd by h

buy. I miimal igaio, h acquid i maiaid a a adalo ubidiay,

o h agy wh al i bough o h buy a w gogaphy. I

h oh xm i ull igaio wh h acquid compay liquih i

idiy ad i olld io h buy opaio, o h ca i iduy cooli-

daio. Hr mu udad h idd igaio agy i od o a

h popl ad culual challg ad complxii ih i ha agy.

What is the strategy or communicating the deal, integration and changes?

How will h buy u ha akhold udad h dal aioal ,

igaio agy ad coqu chag? Alhough may akhold a

ivolvd (uch a xiig hahold, h ivm commuiy, cuom,

vdo, h p ad mploy), Hr pimay coc will b commuica-

ig wih h mploy populaio. to do hi civly, Hr mu udad h

bui-wid commuicaio agy ad alig h mploy commuicaio

o h ovall agy.

How will the integration be managed?

A admak o uccul igaio i ha hy a wll ld ad wll maagd;

igaio ucc do o ju happ. Alhough h pcic o ach dal d-

mi how h wo compai a igad, Hr mu kow h pla o maag-

ig h igaio, ic hi will dmi Hr coibuio o h igaio ad

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h ouc i d o alloca o h o.

now, o h oul-achig quio, which

qui Hr o valua wh i ad i co-

ibuig agically wihi i ow ogaizaio:

Does HR have the right to contribute to

organization-wide discussions, or will it have

to earn that right?

th aw will hlp Hr dmi whh i ca coibu

wih i ial ouc o hould iclud xal advio

o hlp g h mag aco.

Step 2: Providing theFramework to Analyze thePeople and Cultural Issuesth cod p qui Hr o

povid a amwok o io ma-

agm o udad h popl

ad culual iu wihi a boad

bui cox. thi i ial o

wo ao: i dicly how how

h popl iu ac h i

ogaizaio; ad i immdialy g

h culual iu o h abl.

th cha o pag 8 (Famig h

Popl ad Culual Iu) povid

uch a amwok. I allow o aogaizaio-wid udadig ad

aalyz h iu om boh a

acial ad a opaioal ppc-

iv, by gmig h iu alog

h idpd li: acial,

popl ad culual.

th acial li p h

udlyig co o mployig popl

h pla, pogam ad coacual

obligaio du o om o all o h

mploy populaio. thi gm

hlp idiy ad quaiy all him ha ac h acquid compa-

y co ucu ad hi impac o

h acial am. I how h

majo acial im ha ai a a -

ul o mployig popl, cagoizd

by im ad im-lad

pla, mdical pla ad xcuiv

coac (icludig ay acclad

ock gai a a ul o h acquii-

io). Alo icludd i hi gm i

a li im howig h oal co o

mployig popl by addig all hi

acial compo ogh (omdic wag ad alai o b

pla, iciv pla ad pquii).

th popl ad culu compo

a wholly ilikd, ic popl

ca, maiai ad ulimaly chag

a compay culu. th goal i aalyz-

ig h wo compo ogh

i o udad how h acquid

opa, wha i do wll ad wha udamally div i

pomac ad poduciviy. Udadig h imilaii

ad dic i h way h buy ad h acquid do bui-

will abl h buy o ocu mo haply o wha d

Patrick Huang, Managing Director,

Watson Wyatt in Greater China and

Paula DeLisle, Vice President,

Client Services, Asia Pacifc.


4/6winter 2008 Watson Wyatt Perpective 83

o chag (i ih i ow ogaizaio o i h acquid com-

pay), who d o chag, ad how ad wh ho chag

hould ak plac.

I hi cha, h popl gm coid popl a idi-

vidual o goup o idividual ad ivolv h idicaio,

am, lcio, moivaio ad io o mia-io o h op ladhip ad al a h acquid compay

o poibl lag-cal ducio i h mploy wokoc.

Mawhil, h culu gm g a h pcic oga-

izaioal iu ha a uiqu o vy compay. Ba i

mid ha h i o o uival diio o culu; h

impoa poi i o udad h lm o ay di-

io ha mo ac h ogaizaio pomac. Whil

h popl gm g a who do h wok, h culu

pa g a how h wok g do. I how h poc

h compay u o lc i lad ad idiy

i ky al, alog wih how h popl xci dciio

makig ad pow. I dlv dp io h ogaizaioal

modl ad iaucu, icludig viwig h ym

i plac ha wad popl o hi wok ad uppo h

bhavio did i achivig hi pomac goal.

Step 3: Making the Right Decisionin the Right Orderth aliy o mg i ha may iu d o b ackld,

o imulaouly, o wihou h badh ad dph o

daa ha go io ypical day-o-day dciio makig. Giv

hi, i ciical ha Hr uac ad pioiiz iu quickly o

ha dciio ca b mad wih h b iomaio avail-

abl, ablig h mg o pog owad i goal. th

ollowig abl illua how o bak h iu io h

compo: immdia agic pioii, immdia Hr

ucioal pioii ad h iu ha ca b dd o

la oluio.

Making the Right Decisions in the Right Order

Deal Decision Driversand Infuencers

Reaon or the eal anGoal or Integration

Integration trateg an levelo integration anticipate

Communication trateg oreal, integration an ubequentchange

Integration management

Evaluation o HR currenttrategic creibilit

Immediate Strategic Priorities

Organization moel, tructurean eign

People eciion on ke leaerhip

People eciion on ke talent

Termination relating to largecale reuction in workorce

Change plan an relatecommunication trateg

Immediate HR FunctionalPriorities

Tranition o paroll an enrollmentin beneft plan

Emploment contract or keleaerhip an talent

Broaer bae tafng anelection eciion

Repreente emploee negotiation

Integration o buine an emploeecommunication

Deerred HR Issues

Organizational procee thatare not critical to integration

Perormance management anincentive harmonization

Retirement plan eign change

Broa baecompenation level

Ongoing, relevant an conitentcommunication

The challenge is to keep employees engaged, motivated and productive

while the complications involved in the merger are being resolved

Framing the People and Cultural Issues

Individual Ladhip/tal: idiy,a, lc, ai, miaad/o moiva nw xcuiv coac Wokoc ducio

Organizational Ladhip/tal: umb ad dphlcio poc, dciio makig poc

ad how pow i xcid Ogaizaio Modl: ucu, dig,uppoig ym ad iaucu rwad ym: ucu ad iciv

Employee Plans, Programs

and Contracts rim ad im- lad pla Mdical pla Chag i cool coac,icludig acclad ock Compaio toal co o mploym

FinancialGoal: Udad hco ucu.Idiy ad quaiyall im acigacial am

People

Goal: Udadpoduciviy divby udadighow wok i do,ad who do io dmi whad o chag

Culture


5/629 Watson Wyatt Perpective watsonwyatt.com

th agic dciio a ho wih h

boad ogaizaioal ad compa-

y-wid impac. th a:

Organizational

model. thi

how how

h mgd

bui will b

up o ma-

ag i bui. I

dlia h hap

o h w bui, ad

how poig li ad

wok am a o b oga-

izd. Uil h modl i al adcommuicad o h mploy,

ucaiy o pvail a mploy-

a all lvl y o gu ou how h

bui will b ogaizd ad ld.

People decisions. thi la o h lc-

io o h ky popl o u h ogaizaio

ad h io o ky al, i cojucio wih

hi pow ad poig li. th idividual

will ll h job lo i h ogaizaioal modl ad will

alo b h pimay lad i commuicaig h mg

mag houghou h ogaizaio.

Workorce terminations.

thi la o lag-cal wok-oc ducio ad h d o aouc hm a oo a

aibl, whil pcig h lgal poc i ach cou-

y gadig aoucig ad implmig miaio.

Communicating changes. th ogaizaioal modl, popl

dciio, poig li ad wokoc ducio all hav

a igica, immdia impac o mploy bhavio ad

pomac. th challg i o kp mploy gagd,

moivad ad poduciv whil h complicaio ivolvd i

h mg a big olvd. I ay mg, mploy a

all lvl mu udad h impac o h mg o wo

o: hmlv ad h ogaizaio. Poally, hy d

o kow: (a) whh hy hav a job, (b) i o, whh hi

pay ad b will chag, (c) whom hy will po o ad(d) whh hy will d o loca. Ogaizaioally, hy

d o kow: (a) wha chagig i h way hy do h

wok, (b) wha will ay h am, (c) wha hy will do di-

ly, i ayhig, ad (d) how hy will do h wok dily.

th vhicl o achiv hi i a wll-plad ad fawlly

xcud commuicaio agy ha add all h

chag o a coi ad ogoig bai.

th ciical ucioal iu a Hr dic poibiliy.

thy alo a labo iiv, i up ouc i plaig

ad xcuio ad, i o xcud wih pciio, ca

doy ay hop o Hr coibuig o h agic com-

pay-wid dicuio. th la o:

Transition ivolv payoll ad ollig

mploy i w o vid b

pogam, alog wih ay aiioal

iu o b wokd hough wih

h acquid ogaizaio

ad/o vdo upply-

ig h xiig

vic.

Employment

coac o

ky ladhip ad

al cov h pci-

c o hi ol, poig

li, pay, iciv ad b.

Broad-based stafng and selec-tion decision om h coday popl

dciio a h ky ladhip ad wokoc

ducio dciio. Hr mu hav a poc i plac

o ha coi dciio a mad wih pc o boh

llig job opig ad miaig mploym.

Represented employees o h commuicaio

ad goiaio wih mploy pd by uio,

wok coucil o hi local quival. Du poc ad

imig o h dicuio mu b pcd, pcially

wih ay boad-bad wokoc ducio dciio.

Dd iu a ho ha a l impoa o h

immdia ucc o h dal. Dciio o h ca bl uil a h agic ad ucioal iu hav b

olvd. th acic mployd h ivolv coducig a

ivoy o h aa o udad ad docum wha

xi ad povid a iomaio ba o b dciio

makig oc h iu i i h pioiy li.

exampl o h log-m iu iclud boad

chag o ogaizaioal poc, pomac maag-

m ad iciv ym, im pla dig ad

compaio lvl o h gal mploy populaio.

th commuicaio agy mu b ogoig, lva ad

coi o ha mploy udad h pogio o

h igaio ad how h lm will b addd.

SummaryWhh i Chia, Idia, Japa o oh pa o Aia, Hr

ca ad mu play a impoa ol i h ovall mg,

ic olvig may o h iu qui kowldg ad

kill i ogaizaioal modlig, al idicaio, culual

igaio, chag maagm ad mploy commuica-

io. Wih h igh Hr al mployd i mg igaio,

may o h popl ad culual poblm vid i o may

dal ailu ca b miigad o limiad complly.

Jim McKay is Global M&A Engagement Leader, Watson Wyatt Worldwide.


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The role o people in deal ailures

winter 2008 Watson Wyatt Perpective 10

WHy dO dEALs AIL? Primaril becaue poor eciion aremae b people, pecifcall the enior leaer o an organization.

Beore explaining thi tatement in more epth, let recap howa eal i put together. irt, a compan mut make a eciionto grow through acquiition an then evaluate potential target.Ater that, there are three eciion it mut get right: The strategic it (it mut bu the right buine aligne to it

intene growth trateg) The Price an Term (it mut not overpa, nor agree to term

that limit it abilit to uccee) The Integration (it mut combine the organization ucceull).

All three nee to be iniviuall ucceul or the overall ealealto be a ucce. Here, the aing companie ont make, people

o i vali, even though the outie worl ma never know whoreall mae theeciion in anone eal.

so, how oeeal ailure mate-rialize? Organiza-tional perormancerop, leaing to oneo two thing: revenueont meet intenetarget, or the expene inintegrating frm are largerthan expecte. In eal makingterm, buine goal are notmet an nerg target (or

revenue an cot) all hort oexpectation.Given the 70% ailure tatitic,

enior leaer embarking on theacquiition trail nee to make eciionthat will help them beat thee o.some o the poor eciion the make,that contribute to the ailure rate are: The have inexperience people lea the

eal. Thi how through in their enthuiamor oing a eal, which overrie concernabout the trategic ft, the price an majorterm an in the eciion a to how betintegrate the two frm. The reult i that the com-bine buine tart immeiatel miing it goalbecaue the eal itel wa bae on emotion annot oun buine reaon.

The ecie to procee with their trateg, without a wellevelope M&A proce to manage through all the tagean without a tete proce which cover all the ke eci-ion point, in the right orer, aligne to the appropriate tageo the eal. Thi ow the ee o ailure right at the tart o theeal. It frt how through when acquiition team are put to-gether to run the ue iligence, but thee team member otenhave no vete interet, nor expertie, in the operational etailo integration, an gather uperfcial integration inormation atbet, particularl on the real leaer an talent in the target anhow the target actuall operate. The reult o thee uperfcialintegration aement i that ubequent integration eci-ion are bae on inaccurate inormation, mae in a haphazaran conue wa.

The ela on eciing the leaer o the combine orga-nization. The leaer o the combine organization are notname immeiatel, an ailure to make thee oten toughan emotional eciion, reult in a cacaing conuion allthe wa own to the emploee population bae. Thi howthrough when man integration meeting en a icuiono iue, but little eciion are actuall mae an imple-mente. The reult i organizational grilock, an buine ilot uring thi conue an leaerle time.

The ela on ientiing talent an letting that talent know theare ke. Thi i ignifcantl tie to the leaerhip eciion above,there i impl no real leaerhip to ienti the talent, peak tothem an get them to commit to ta with the combine organiza-

tion. Thi mot oten how through when ale people leave, orR&d talent teameect a a groupto competitor.Talent ten to

become iati-fe with anwer

to their career pathquetion, an their

contractual term arehatil put together. The

eect to competitor whoentice them with concrete

anwer to quetion.The allow the two compa-

nie to loe ight o their market

an cutomer. The buer ha notthought through the bet wa to getthem working a one, an the two

buinee ont know how to worktogether. Thi how through when the

integration ocue on big compan cor-porate tructural eciion on fnancial an

legal reporting, rik management tem, ITtem or perormance management change

all to o with operating efcientl, little to ocutomer, either with winning new one an/or

retaining exiting buine. The reult i that thecombine buine become itracte rom the

marketplace. sale people can become conueabout what the are elling, to what cutomer, an on

what term, or team put together to lan large projectiagree on the approach, timing an pricing o the project.

The have not planne or avere reaction to work-orce reuction. The have not thought through the implica-

tion o large cale reuction, an oten terminate emploeeon a taggere bai, in line with their trategic plan an not

the impact on emploee behavior.While thee iue ma have been ientife, the buer might

be low to act on the iue. I the leave thee eciion untilintegration i in progre then that i too late. The can be pre-vente however b people who have been through eal beorean who can anticipate an prevent man o thee iue romariing in the frt place.

Experience buer incorporate mechanim to ur ace anreolve thee iue ver earl in the proce, beginning with theue iligence invetigation.

Experienced buyers incorporate mechanisms to resolve peopleissues very early in the process o due diligence

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