The Human Factor in M&A Success

Jim Ryan is the Global Leader – Mergers and Acquisitions for Protiviti, a subsidiary of Robert Half. Protiviti is a global consulting firm that helps companies solve problems in finance, technology, operations, governance, risk and internal audit.

On paper, mergers and acquisitions hold so much allure: Access to new markets, cost savings, opportunities to deliver new products and services.

But as countless studies have shown, many fail to live up to expectations. Though the reasons for failure are legion, one common mistake is underestimating the vital role human capital plays in every facet of the complex undertaking - before, during and after.

Perhaps most importantly, key stakeholders need to grasp this tenet: Assembling the right people to lead the planning and execution of integration is tantamount to ensuring that the right people remain with the organization once the deal is done.

Protiviti recently published Guide to Mergers and Acquisitions: Frequently Asked Questions. The guide, which serves as a user-friendly resource for executives navigating the M&A process, underscores some of the key contributions they can make. 

Establishing the PMO - Among the crucial first steps is selecting the right team to manage the integration. As our guide states: "While a successful integration can't correct a poorly conceived deal, an unsuccessful integration can destroy the potential value of even the best strategic acquisition."

It is imperative to establish a central project management organization (PMO) that coordinates the activities of multiple function-specific teams, such as finance and accounting, HR, IT, marketing, sales and customer service. The PMO needs to include both members of the due diligence team, as well as operating talent with project management capabilities.

That blend of personnel ensures continuity between those who identified the deal's potential and the individuals responsible for driving the integration to realize it. The functional teams need to include a dedicated liaison from the PMO and representation from the two existing entities that will form the new organization. Engaging participation of all parties in a transparent fashion will be a recurring theme to foster an environment where change can flourish.

Managing integration risks - Once the PMO is in place, the real work of integration can begin. Its successful execution can help minimize common M&A risks such as loss of customers, business or production disruption, cost saving shortfalls, and loss of key talent. Mitigating the latter can be achieved with HR's involvement in the M&A process - and the sooner, the better.

Among the steps that can be taken to retain key employees and prepare for the inevitable departure of some:

  • Make staffing decisions quickly. Uncertainty about roles and reporting lines are the most common reasons cited for attrition after mergers. Making clear personnel decisions and communicating them definitively can reduce the risk.

  • Use retention bonuses. This can help keep people on board during difficult transitional months. Such programs can add to integration costs, but can ultimately be more cost-effective.

  • Establish contingencies. For critical posts, develop succession plans. In resource-constrained situations, for example, it's advisable to have talented professionals "on deck" if needed to fill sudden personnel vacancies.

Practicing effective change management - Ultimately, it is the employees' willingness to embrace change and the promise of a better future that determines the new organization's fate. Such buy-in can't occur, however, if executive management does not create a "future-state vision," or worse, fails to convey it effectively throughout the organization.

Too often, that's exactly what happens because leadership underestimates the complexity of delivering this vision to various audiences - often in different languages, organizational levels and regions. Flawed communication in these situations tends to focus only on expected outcomes - for example, "A new system will be deployed by X date to X group of employees."

In essence, such a message is nothing more than a directive that doesn't answer the questions that trouble employees the most: Why is this necessary? How will it affect me?

If employees can’t understand the need for change, not only might they reject it, but they may even go out of their way to resist it. Such obstruction may be harder to navigate than any physical hurdle and underscores the need for considering the human factor to help ensure the success of any merger or acquisition.

Related blogs can be found at The Protiviti View, which features commentary, insights and points of view on key challenges and risks facing companies today.