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Kid Gloves or Iron Fist: How Fast and Flexibly to Approach Post-Merger Organizational Integration

While there are no universal HR best practices on how best to digest acquired organizations, we’ve developed a layered decision framework based on a logical sequence of activities to answer a recent inquiry about the speed with which to attempt the organizational integration of an acquired company. The first step, which still is a rarity, is inclusion of the top HR executive on the deal team to explore how issues such as fallout from attempting to integrate disparate corporate cultures may affect the value of the combined entity once the transaction happens. A healthy appreciation for the art of the possible really helps at this stage.

HR’s goal should be more to suggest ways to make a proposed combination work than to offer an opinion about whether it should take place.

CEOs, CFS and their advisors typically won’t be dissuaded from pursuing an otherwise attractive target due to HR’s views about cultural incompatibility. In fact, the top HR executive typically is brought on to the deal team late, if at all, and is asked to tackle organizational integration issues after a decision to proceed with the transaction already has been made. Though it’s what happens most often, this really should be the second stage of HR’s involvement in a combination, and requires understanding the reason for the deal in the first place, as well as knowledge of commitments made to executives of the acquired entity about their future roles in the combined company.

HR executives invited on to deal teams right at the start should know these things. Those who come on later need to find them out ASAP, because the output of the second stage is HR’s approach to integration, which is based primarily on the criticality of retaining and motivating some or all of the knowledge workers of the acquired entity.

There are myriad valid reasons for combinations, and HR’s handling of the people issues involved can accelerate or delay value creation for the owners of the business. For instance, combinations made primarily to increase the size of survivors in a consolidating market normally require the retention of knowledge workers at the acquired company only for as long as it takes to transfer critical information, which means HR should consider “pay to stay” mechanisms. Since the rationale for such deals always involves elimination of redundancies to spread G&A costs over larger revenue streams, it’s normally good to encourage some people to leave. By contrast, acquisitions made to strengthen or extend product or service portfolios, to acquire technology or business process expertise or to enter new markets, typically require the retention and motivation of people with the relevant knowledge or contacts. In these cases, HR’s first step should be to determine what attracted those people to the acquired company and kept them working there, to decide whether, for how long and how much to insulate them from melding exercises. The other critical piece of information needed at this second stage is the degree to which organizational integration is affected by commitments made to executives at the acquired company in order to make the deal happen—a wild card.

The third stage or layer at the outset of the organizational integration process involves collaboration with the HR department of the other entity to develop messages for employees of the newly combined enterprise, and especially for those from the acquired company. To reduce “post-merger drift,” a condition that slows down all corporate activity while employees find out how to act in the new environment, it’s good to inform everyone about anything that’s likely to distract them from getting work done—things such as what’s happened to benefits plans, how corporate cultures differed (along with a primer on how to proceed in the new environment covering items from the need to get management’s approval for different activities down to how to submit an expense report) and how the combination makes the new entity stronger or more viable.

The three stages in this framework only address the very beginning of the integration process, but it is the most critical time in any combination of sufficient size to transform the acquiring entity.

Reprinted by permission of Human Resource Institute. Copyright 2005. For more information: http://www.hrinstitute.info.