Role of HR in M& A
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Transcript of Role of HR in M& A
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It is clear that you cannot stay in
the top league if you only grow
internally. You cannot catch up justby internal growth. If you want to
stay in the top league, you must
combine.
- Daniel Vasella, CEO, Novartis
In the long run
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Arjun Deswal (156)
Anil Deokar (168)
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Flow
Introduction
The Status of GTB
Synergy Activities to be performed by HR
Pre-merger & Post-merger issues
Key Shortcomings
Mismanagement issues in the deal
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OBC GTBReactive v/s Proactive
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Global Trust Bank
GTB was struggling with Regulatory issues for
4 years, when it identified UTI Bank to merge
with.
RBI pulled the plug & imposed a 3 month
Moratorium on GTB.
OBC was identified to amalgamate with GTB.
Was OBC to gain out of it?
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A Market Extension Merger
OBCs gains
Market presence in South & East India
Wide chain of Automated Teller Machines A differentiated clientele
Technological edge
But the real question is: must a strong public sector bank
always take up the tab of rescuing a weak private sector
bank?
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Synergy
Synergy is the magic force that allows for enhanced cost efficiencies of
the new business. By merging, the companies hope to benefit from the
following:
Staff reductions - As every employee knows, mergers tend to mean job
losses. Consider all the money saved from reducing the number of staff
members from accounting, marketing and other departments. Job cuts
will also include the former CEO, who typically leaves with a
compensation package. OBC in a fix.
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Synergy
Acquiring new technology - To stay competitive, companiesneed to stay on top of technological developments and theirbusiness applications. By buying a smaller company with uniquetechnologies, a large company can maintain or develop acompetitive edge.
Improved market reach and industry visibility -Companies buy companies to reach new markets and growrevenues and earnings. A merge may expand two companies'marketing and distribution, giving them new sales opportunities. Amerger can also improve a company's standing in the investmentcommunity: bigger firms often have an easier time raising capitalthan smaller ones.
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M&A activity presents a different set of
challenge for the human resource managers inboth acquiring and acquired organizations.
Nothing was in the hands of GTB employees.
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Major activities to be performed by HR
Developing key strategies for a company's M & A
activities. Does it happen with a PSU?
Managing the soft due diligence activity. No TalentManagement.
Providing input into managing the process of change.
Advising topmanagement on the merged companys
new organizational structure.
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Human Resource issues in Mergers &
Acquisitions
The human resource issues in the mergers and
acquisitions (M&A) can be classified in two
phases they are:
Pre-merger phase
Post- merger phase
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Pre Merger Phase Issues
The pre acquisition period involves an assessment of the
cultural and organizational differences, which would include
i) organizational cultures,
ii) role of leaders in the organization,
iii) life cycle of the organization, and
iv) the management styles
The mergers often prove to be traumatic for the employees of
acquired firms; the impact can range from anger to
depression.
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The other issues in the M&A activity are the :-
i) changes in the HR policies,
ii) downsizing & layoffs,iv) survivor syndromes,
v) stress,
vi) information system issues etc.
The human resource system issues that become important inM&A activity are:-
i) human resource planning,
ii) compensation selection and turnover,
iii) performance appraisal system,
iv) employee development and
v) employee relations.
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Post Merger Phase Issues
The post acquisition is found to have serious impact on the
performance of the employees during the period of
transition.
The M&A leads to stress on the employee, which is caused bythe:-
i) differences in human resource practices,
ii) uncertainty in the environment,
iii) cultural differences,iv) differences in organizational structure and
v) changes in the managerial styles.
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The uncertainty during the M&A activity diverts the focus of
employees from productive work to issues like job security,
changes in designation, career path, working in new
departments and fear of working with new teams.
The M&A activity leads to duplication of certain departments,
hence the excess manpower at times needs to be downsized
hence the first set of thoughts that occur in the minds of
employees are related to security of their jobs. The M&A activity also causes changes in their well defined
career paths and future opportunities in the organization.
Some employees also have to be relocated or assigned new
jobs; hence the employees find themselves in a completely
different situation with changes in job profiles and work
teams.
This may have an impact on the performance of the
employees.
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Key Shortcomings
RBI appointed M P Chitale & Co. for the
purpose ofFiscal & Workforce Due-Diligence
on the day of the merger, OBC never had an
opportunity to work on its terms.
NO Retrenchment. Only such employees to
leave who had not consented to work with the
Transferee Bank.
No Pay- Cuts for a minimum period of 3 years.
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Strategic Fit between M&A and HRM
It is important to have a clear understanding of M&A
strategies to be able to specify the role that HRM should play.
In order to consider the fit between M&A and HRM strategies,
and to help make sense of HRM challenges in the differenttypes of M&As.
They are of three conceptual tools:
i)Resources
ii)Processesiii)Values
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Resources are defined as tangible assets, such as money and
people, and intangible assets, such as brands and
relationships. In the context of HRM in M&As, decisions about
resources involve staffing and retention issues, with
termination decisions being particularly important.
Processes refer to activities that firms use to convert the
resources into valuable goods and services. For example, inthis case, these would be training and development programs
as well as appraisal and rewards systems.
Values are the way in which employees think about whatthey do and why they do it. Values shape employees
priorities and decision making.
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Best Practices Check ListAREA BEST PRACTICE
Leadership Identify the leaders in both companies.
Identify who will have leadership roles in the combined organization.
Transition Team Identify who from various departments within the combined
organization is going to be a part of the transition team.
Structure Finalize the organization structure for the merged entity in context of
operation size, products, etc.
Incorporate different structures and approaches.
Focus first on the broad top line structure, with detailed structures
evolving subsequently followed by detailing of roles and responsibilities.
Policies & Processes Compare and study HR policies of both entities and identify
areas of commonality and differences.
To the extent possible ensure no or minimum loss to
employees on account of changes in policies.
Consider all cost
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AREA BEST PRACTICE
Workforce
Rationalization
Handle redundancies with sensitivity in a phased manner
unless the issue is a large one.
Job Assignment Perform a competency assessment
Involve top team and key functional head in assessing the
suitability of individuals for roles
HR or an External Consultant play the role of challenging and
facilitation in a neutral way.
JobGrading/Banding
Pay attention to organizational culture, willingness ofleadership to implement, and HR ability to drive the process.
Ensure proper communication all through the exercise.
Alleviate anxiety and apprehension among employees.
Compensation Compensation comparisons by employees in both entities
are inevitable.
Company should be clear in its approach and philosophy
It is usual to align compensation structures.
Ensure no loss to employees because of compensation
changes.
Compensation announcement timing is important.
Retention. Create a retention plan that encompasses all of the above best
practices
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Mismanagement
Expectations were unrealistic.
Hastily constructed strategy, poor planning, unskilled
execution.
Failure to unify behind a single idea.
Talent was lost or mismanaged.
Rigidity.
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Major activities that are supposed to
be performed by HR
Creating transition teams
Overseeing the communications
Managing the learning processes
Re-casting the HR department itself
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New roles for the HR leader
Partnership
Change Facilitator
Strategy Implementor
Strategy Formulator
Innovator
Collaborator
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Thank You