The challenge of corporate integration

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The past few years have seen a steep increase in cross-border merger & acquisition (M&A) activity—be it global behemoths grabbing a share of lucrative businesses here, or Indian companies acquiring companies abroad. A few samples: Vodafone’s $12.9-billion acquisition of 67% stake in Hutchison Essar; Tata Steel’s $12-billion buyout of Corus; and Hindalco’s $5.9-billion Novelis Inc (Canada) deal.

However, despite the synergies and competitive advantage that M&As offer, they can also have a disruptive effect on organisations if not managed with care. And the key to successful integration and change management is carrying the people—both in the acquired and acquiring company. Says Ma Foi Consulting Solutions Ltd CEO Abhay Phadnis: “Transparency, constant and appropriate communication, and genuine fairness on the part of the employer are obvious touchstones, but there is no magic wand. It is a painful process and needs careful planning and diligent effort to minimise the pain.”

The biggest challenge for a human resources manager in any M&A is handling employee insecurities about what the merger means for them in terms of job security, role changes and future career. Cultural diversities, extending communication fora across the merged enterprise and creating continuity across corporate boundaries during the merger process are some other challenges faced by the HR managers.

Recounting his experience, Deependra Chumble, chief people’s officer, Hexaware Technologies Ltd, says, “HR faces challenges from both sides. During an M&A, HR has to act as the mediator between the two organisations involved. The role of HR is to find out where the commonalities are, emphasise and use them as steps for further action plans. The real test lies in how successful HR is in minimising the conflicts to integrating the two organisations seamlessly.”

The challenge is even greater if the M&A involves different geographies, cultures, languages and legal environments. Experts feel that the culture of a company can be felt in everything it does: the way people meet, discuss and conduct business. Firstsource Solutions Ltd executive VP, HR, Ashu Calapa says, “There are four factors that lead to identifying, aligning and changing corporate cultures. Those are: defining the desired behaviour, deploying role models, providing meaningful incentives and communicating clearly and consistently.”

M&A transactions are divided into four distinct phases: selecting the target, due diligence, integration planning and implementation. The involvement of HR is generally higher in the last two stages as the first two largely involve financial decisions. However, effective management of a merger or acquisition implies involving HR from the target selection stage itself, understanding the rationale behind the deal, reviewing the target company’s compensation policy, comparing organisational philosophies, educating finance managers about the risks and costs, mapping job descriptions, and designing an appropriate transition plan.

Overall, a merger or acquisition affords a valuable opportunity for companies to review their existing systems and design new ones that are more comprehensive and serve the needs of the new entity. Vice-president, HR operations & people development, Patni, Kalpana Jaishankar believes, “Integration and implementation is more important and should not be spread over a long period of time. It should be confronted and resolved at the earliest.”

Integration planning is the stage wherein various points of contact with people from both sides are decided, highlighting processes that will take time such as the performance-management process, recruitment process, exit process and payroll process. During the implementation stage, HR is involved in all the steps, as at this stage, people integration is discussed. Herein lies the highest possibility of discord. “The key here is to remember that more communication is better than less communication,” says Chumble.

Often, M&A necessitates manpower rationalisation. “The most significant aspect of such rationalisation is to determine the business need, to communicate that need to the staff and to ensure that individual respect or dignity is always upheld in the process,” said Rajiv Singh, vice-president, HR, Geometric Software Solutions.

The core capabilities needed by an HR manager to overcome the obstacles to a successful M&A is the ability to understand cultural issues and the ability to walk the thin line between discretion and transparency successfully and look at the big picture. The management team has to anticipate and prepare for the emotional response of employees at the earliest, say experts.