Making Mergers Work
The failure rate for business mergers is terrible. The rule of thumb is that around two thirds fail and a big contributing factor is the people who fail to merge successfully. All of which should put HR directors at the heart of every merger activity. But in truth, it is finance directors and chief executives who hold centre stage with HR normally brought in once the key decision has been made.
HR's influence would be helped by having clear advice for Chief Executive based upon sound research. Giving some contribution to their cause is a recent collaborative paper by academics from UK and German universities that examines people's identification with the new organisation following a merger. Postmerger identification is the goal to be aimed at, as it dictates people's enthusiasm for making the new entity work. The findings of the paper might well appear intuitive but many mergers are conducted in ways that are at odds with what might, with hindsight, seem commonsense. Of particular note are the following:
1. People must see the new organisation as a continuation of the organisation with which they previously identified. This is a particularly important lesson when the merger is not between equals and is, in reality, a takeover. If everything of the old organisation is lost, post-merger identification is lessened. Members of the taken over organisation will be far less enthusiastic than if elements of their organisation are preserved and valued. When NatWest was taken over by RBS, Fred Goodwin and his senior colleagues appeared to do little to flatter the staff of his quarry.
2. Perceptions of the merger's fairness will have a major impact on identification with the new organisation. Fairness concerns both the distribution of resources and outcomes (does one organisation take all the plum jobs?) and procedures in terms of people's treatment and how the change was implemented.
3. People in both organizations must see the pay-offs of the merger for them. It is, for example, important in a corporate rescue to keep the commitment of the staff in the dominant organisation and for them to see their interests and security as preserved following the recue. For example, it would be interesting to find out the views of
LloydsTSB staff following their rescue of HBOS.
These apparently obvious insights are all too easily forgotten when Chief Executives and Finance Directors are concentrating upon the financial and legal aspects of the merger. Communicating them clearly and with authority gives a chance for HR Directors to assert their role and to earn their place at the top table.
Human Assets has more than two decades experience of applying the insights of psychology to business and can act as an advisor to make sure that the fundamentals and the detail of a merger are handled skilfully. Our aim is to ensure that clients are in the one third of successes and not the two thirds of failures.
For a discussion on these matters, please contact Charles Woodruffe. Charles can be reached on +44 (0)207 434 2122 or charles.woodruffe@humanassets.co.uk
Reference
Gleibs, I.H., Mummendey, A and Noack, P. (2008). Predictors of change in postmerger identification during a merger process: A longitudinal study. Journal of Personality and Social Psychology, vol 95, pps 1095-1112.