Acquisition and integration – frequent headaches II. – human resources

Acquisition and integration – frequent headaches II. – human resources

“The inventory, the value of my company, walks out the door every evening.” – said Bill Gates, which is probably one of the simplest and best explanations of the importance of human resource in the corporate world. Despite of being undoubtedly one out of the three assets besides capital and natural resources, we do not intend to contribute to this theoretical debate here. A whole library of brilliant scientific and practical pieces of literature are available with different approaches, based on different beliefs and experiences.

In our most recent article ‘Acquisition and integration – frequent headaches I.’ we touched upon some specifics of the human nature in the context of involvement of different business areas in an acquisition transaction. It would easily fill a whole article, should we go deeper into it. Our intention is to be more technical in this release, as the articulated purpose is to shed some light on the transition period and those service areas, which are most frequently pushed back behind the issues directly related to the core business activity.

No news is good news. Topics such as employee contract record-keeping, working hours administration, payroll provision, KPIs, development plans, etc. are better to be managed below the radar, because in case of an issue, even the slightest one, it tends to jump immediately to the internal corporate headlines. Once that happens, you can be sure that you have missed the very last chance to handle it smoothly….

“It is just a technical issue…”, “it can be managed with adequate communication…”, “we have so many people in the HR department, they should take care of it…”. Only some examples of declarations we have heard so far in connection with the aforementioned human resource related technicalities. Do these notes really imply a well-founded communication strategy? 

Hierarchy of needs. Take one step back and try to understand how people relate to their jobs. Maslow-Pyramid* is part of the economics, sociology and also psychology studies and still – probably –  the most popular theory of human nature. It is a rather general theory; however, it is easy to translate into a job-related one.  Besides building a separate theory, only use the assumption that people seek different benefits when entering employment. Receiving financial compensation is surely very basic, provided that in modern societies most of the necessities, such as food and water, are accessible for money. Need for socialising, build human and professional relationships, receiving appreciation, being provided the opportunity to develop, to participate in decisions or complete a mission are those which are higher in the hierarchy, and due to their nature, most probably sought and met by less and less employees in a company.

Efficiency through outsourcing. Most commonly a human resources department covers functions such as recruitment and staffing, compensation and benefit, training and development, employee relations, health and safety and compliance (including labour and data protection, amongst others). In smaller enterprises these functions might be found in combination with each other, and frequently with less technological support when it comes to data handling.  Outsourcing need appears where special knowledge or equipment is necessary but less interactions are expected and building up a function is not rational.

Obviously, growth in terms of headcount tends to trigger certain investments into IT support, parallel to an increased level of standardisation, where possible. Needless to say, those large firms with larger hierarchies and sizable headcount often choose the way to centralise, or outsource functions and activities (mass, standardised, computable, recurring ones) such as payroll, health and safety, IT related equipment supply, etc.), and also the procurement of them.

Related party services.  For this matter, the integration process after an acquisition, we will

consider related party services as outsourced ones, due to the fact that their treatment requires a similar approach. Once an acquisition is completed, you will face the followings, depending on the characteristics of the acquirer and the target, presented as a small matrix on Table 1. 

The situation highlighted in blue seems probably the most complex, unless both parties use the same out-of-the-box systems with minimal individual adjustments (e.g. country or industry specifics, or labour composition, etc.).  This is not necessarily true, such as associating minimum risk with the situation highlighted in grey. 

Generally, though it seems to be a strong simplification, the most problematic might be those cases where the difference is huge, regardless of difference in size, industry focus, labour composition, culture, even in approach to the role of IT, digitalisation, corporate hierarchy, etc. The larger the difference, the higher the possibility of the integration to become a lengthy process full of hassle with all its consequences. Think of the time and money spent on procedure planning/recast, data processing, structuring and data-migration, testing, decision-making authority review, the related negotiations and communications internally, etc.

Time is money. Of course, though it is not only time. Fortunately, and unfortunately. The more complex integration gets the higher the possibility of making mistakes, so it is advisable to be very structured and clear when it comes to execution. Especially, if the desired systems included in the target company has been part of the price negotiations, and it has become high time to exploit the envisaged benefits.

Even if you think that you have all the necessary expertise internally, and you really do, do not lose sight of the importance of the core activities and the operational tasks that might experience a stressful environment while facing

the same – if not higher – expectations. Can you imagine a mistake in payroll processing, a delayed training period, rescheduled course, suspension of car allowance, etc. in such a period?

Question of trust. We all know that trust is hard to earn and easy to lose. Remember the hierarchy of needs in relation to an employment engagement, and also the volume of the problems stemming from the number of employees affected or the influence of them individually. Nevertheless, those in the higher level in the hierarchy, tend to consider the integration process as a challenge, and probably open to understand temporary discrepancies. Employees with basic needs, which means basic financial security, tend to get stressed immediately when something seems to go in a negative direction.  One day delay in the salary payment, in itself, can result in tension and would give space for negative assumptions and fears.

Basically, it is not the possible legal costs or other compensations, not even the cost of technical changes to be associated with the integration, which is the greatest threat. Large number of employees with fears, defensive or suspicious attitude will surely not be able to achieve the same results as before, such as never-ending transition can consume the energy and deteriorate enthusiasm of the most committed staff members.  Then how to deal with it?

Be rational. Calculate, plan, test, in a relatively peaceful environment, if you can. Then stick to the plans. It has a low possibility that you find the right decisions under pressure in a generally stressful environment. If already blown by the process, ask for help as soon as practicable.

Take care of your core business and your employees, in order to let them take care of your clients and the operation. Remember that they are your valuable assets, and what really should matter is their face when they walk out the door in the evenings in the course of the integration process, as well.

Table 1.

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