Presentation on theme: "Article Name: HR Issues and Activities in Mergers and Acquisitions RANDALL SCHULER, Rutgers University, New Jersey SUSAN JACKSON, Rutgers University, New."— Presentation transcript:
Article Name: HR Issues and Activities in Mergers and Acquisitions RANDALL SCHULER, Rutgers University, New Jersey SUSAN JACKSON, Rutgers University, New Jersey Presented To Prof. Tarek Abdeen Presented By: Gamal Sedky Moataz Moustafa The Arab Academy for Science, Technology and Maritime Transport D.B.A Program
Article Authors Randall Schuler: Is Professor of Human Resource Strategy and Director of the Center for Strategic HRM at Rutgers University. His interests are in global HRM, strategic HRM, the HRM function in organizations, and the interface of business strategy and human resource tasks. A prolific author, he has written or edited over 40 books, many in multiple editions and published over 100 research papers in journals. Susan E. Jackson : Is Professor of Human Resources Management at Rutgers University, and Graduate Director for the Doctoral Program in Industrial Relations and Human Resources. Her expertise lies primarily in strategic HRM, managing team effectiveness, workforce diversity, stress and burnout. She has authored well over 100 research papers in journals on these subjects, and several major books.
Article Outline 1. Mergers and acquisitions o 1.1. Types o 1.2. Reasons o 1.3. Assumptions o 1.4. Track record 2. Three stage model of mergers and acquisitions o 2.1. Stage 1 — pre-combination o 2.2. Stage 2 — combination — integrating the companies o 2.3. Stage 3 — solidification and assessment of the new entity 3. Role of the HR department in M&A activity 4. Conclusions o 4.1. At the company level o 4.2. At the HR level
Article Idea and Objective Article Idea: The article define Merger and Acquisitions (M&A) which increasingly being used by firms to strengthen and maintain their position in the market place, fast and efficient way to expand into new markets and incorporate new technologies failure in substantial number of M&A can be explained by neglected human resource issues and activities. The authors begin by identifying the types of mergers and acquisitions, the reasons for their successes and failures, and the many people issues involved. Then a three-stage model is described. This is followed by an overview of the implication for the Human Resource (HR) Departments and HR Professionals. Article Objective: To articulate a systematic, people-oriented, approach for effectively doing mergers and acquisitions from beginning to integration and post-integration.
Types and Reasons of Merger and Acquisition Types of Merger and Acquisition: Mergers of equals : often compels the two companies to share in the staffing implications Mergers between unequal' s: results in the staffing implications being shared unequally Acquisition and integration. Acquisition and separation. Reasons: There are numerous reasons most frequent include: Gaining a core competence to do more combinations. Talent, knowledge, and technology today. Survival ; critical mass. Growth for world-class leadership and global reach.
Assumptions There are several basic assumptions being made, These include: M&A’s are the fastest and easiest ways to grow. M&A’s are likely to fall short of their initial goals. M&A’s are difficult to do. Creating synergies is a major challenge. Molding cultures is a major challenge. Soft and hard due diligence are necessary but not sufficient conditions. Pre-planning can help increase chances for success.
Track Record Mergers and acquisitions are more likely to fail than succeed. Statistics show that more than a staggering 75% fail. Only 15% of mergers and acquisitions in the US achieve their financial objectives. Reasons for Success: The major reasons for success in mergers and acquisitions include: Leadership. Well-thought out goals and objectives. Due diligence on hard and soft issues. Well-managed M&A team. Successful learning from previous experience. Planning for combination and solidification steps completed early. Key talent retained. Extensive and timely communications to all stakeholders.
Track Record Cont. Reasons for Failure: Expectations are unrealistic, Talent is lost or mismanaged, Power and politics are the driving forces rather than productive objectives,Culture clashes between the two entities go unchecked, Transition management fails, Defensive motivation and focus of executives is distracted from the core business (Charman, 1999; Sparks, 1999; Doz and Hamel, 1998). Chrysler marketing chief recalls his first meeting at the Mercedes-Benz US headquarters.As the Germans presented their view of the brand hierarchy — Mercedes on top and everything else far, far below recently as August 2000 was quoted as saying, ‘We have a clear understanding: one company, one vision, one chairman, two cultures’ (The Economist,2000). As a result DaimlerChrysler may be ‘one’ company in name, the fact remains that two separate operational headquarters were maintained; one in Michigan and one in Germany.
Three Stage Model of Mergers and Acquisitions HR issues to be addressed in three stages of the M&A process. The three stages shown are (1) pre-combination; (2) combination and integration of the partners; and (3) solidification and advancement of the new entity (Evans, et al., 2002; Habeck, Kroger and Trum, 1999). Stage 1 — Pre-Combination: The pre-combination stage includes all of the activities that occur before the M&Ais completely legally. Thus it includes the process of determining the reasons for becoming involved in a merger or acquisition (as a buyer or a target), searching for possible partners (whether domestic or international), evaluating the alternatives, selecting and negotiating with a specific partner, and planning for the eventual implementation of the deal. In many respects. A key HR activity in Stage 1 is the performance of a HR due diligence. The HR due diligence process should assess the human capital of an organization.
Stage 2 — Combination — Integrating the Companies: Portfolio Approach: This scenario often occurs when one firm acquires another firm as a pure investor or in order to diversify into another business or region and then allows the acquired firm to operate as a relatively autonomous subsidiary. The top management team assumes that the two organizations will continue to operate more or less as they had operated prior to the M&A. The Blending Scenario: Arises when top managers intend for the two organizations to come together or merge into a new organization that retains the best aspects of the original partners. The blending approach is perhaps most common in M&A that occur within an industry and between firms that are believed to complement each other’s strengths and offset each other’s weaknesses.
Stage 2 — Combination — Integrating the Companies Cont. A New Creation Scenario: Arises when the partners agree to create a new firm that is truly different from either of the original partners, The resulting firm takes on a completely new name. The focus is on culture from the start and spared no effort to create a totally new culture from day one. Assimilation : in some acquisitions, the buyer clearly intends to take over and control the target. Typically General Electric and Siemens do this with many of their acquisitions (Javidan, 2002)
Stage 2 — Combination — Integrating the Companies Cont.
Stage 3 — Solidification and Assessment of the New Entity As an M&A takes shape, it faces issues of readjusting, solidifying and fine- tuning. These issues take on varying degrees of intensity, although not importance, depending upon the approach to integration that the firms adopt.
Role of the HR Department in M&A Activity Participate in developing key strategies for a company’s M&A activities. 85 per cent of HR executives say they should be involved (Liberatore, 2000). Managing the soft due diligence activity. Advising top management on the merged company’s new organizational structure. Almost 75 per cent of HR executives think this, and only 9 per cent think that HR should have full responsibility (Charman, 1999). Creating transition teams. Developing a communication plan aimed at realizing a vision of the new organization. Managing the learning processes. Re-casting the HR department itself. Identifying and embracing new roles for the HR leader.
Conclusions There are numerous conclusions that can be made about M&A activity, both at the company level and at the HR level At the Company Level It is important that business and integration strategies be clear It is important that performance expectations be reasonable and take into account market conditions, capital investment requirement, etc. The seller’s picture is too often the starting point for ongoing operations (e.g., artificially inflated sales, lagging capital investment) — but is not realistic as a performance goal. It is important to also make sure that areas such as HR, IT, Operations and R&D are represented on the teams — participation will depend upon key value drivers of the deal
Conclusions Cont. At the HR Level Companies should put their best people in charge of implementing M&A deals. More emphasis needs to be placed on early planning of the integration process. Difficult decisions should be dealt with quickly. Employee communications, retention of key employees and cultural integration are the most important activities in the HR area for successful M&A integration. Acquired company employees often identify cultural elements (e.g., flexibility in decision-making) as integral to the company’s success. Acquired companies often view their culture as faster moving than that of their new, larger parent.