The 'Killer' Element In Mergers

Several basic issues need to be addressed when two organizations merge. Many
times the objective is to fill some gap, either in the product range, or in
geographical presence. While keeping the business goals in mind, it is equally
imperative that the merger ensures that the personnel in the new entity are not
affected adversely.

For people in the IT industry, the news about HP chief, Carly Fiorina's
unceremonious exit must have come as a shocker — despite claims from some
quarters that the move was expected. The reason for the same, however, was
predictable.

I remember the time when the merger announcement was made. HP's competitors
greeted it with jeers. Dell and IBM seemed happy at the move and reportedly said
that the merger between HP and Compaq would actually help them. Compaq's
acquisition of Digital Equipments Corporation in 1998 had prompted me to write
an article on cultural compatibility in my column in the DQ Week. And now I am
writing one on the same subject for DQ Channels India!

GIANTS ACQUIRING SMALLER ENTITIES

It seems clear that merger between two mammoth entities is fraught with
dangers. Cisco's chief had put it very succinctly when he said that he did not
know how to integrate such large companies successfully. Cisco acquires
companies 'every other day'. So they should know.

But Cisco's strategy has been to acquire smaller companies so that
assimilation with the parent entity is manageable and does not cause upheavals
in the existing setup. Merger of large corporations have a tendency to turn out
more like a clash of the Titans.

Employee
performance depends on three major parameters — the job, the environment, and
the person. If these three parameters are not well mapped on to each other,
performance will suffer. When large companies with distinct cultures merge, the
most affected parameter is the organization environment.

An organization's culture develops over a long period, often nurtured by
the promoter since inception. Naturally it is deep rooted in the employee
psyche, and efforts to change it are not welcome. In a merger scenario where
operations are sought to be integrated over a relatively short period compared
to the organizations' age, it is almost like two tsunami waves from opposite
directions hitting each other!

It is unlikely that those planning the merger are unaware of the challenges
ahead. I am sure that experts on facilitating integration would also be
involved. Then why does the process not deliver? That's a question that is
easier asked than answered. Needless to say that each situation is different and
the factors that contribute to the success or failure of this exercise must also
be different. So I will limit myself to addressing some very basic issues.

WHY MERGE?

One of the basic issues to be addressed is the cause for the merger
decision. Many times the objective is to fill some gap. The gap may be in the
product range, or in geographical presence. Growth could also be an objective
— the urge to move up the comparative rankings in terms of revenue.
Eliminating competition could also be an objective. It is crucial that the
stated reason is also the real objective. Hidden agendas, if any, are sure to
ground the initiative. The problem is how do the layman know?

The objective determines the criteria to search for a suitable organization
for acquisition. There are several possibilities now. Does the target
organization also compete with the acquiring company in any product range? If
yes, then product rationalization issues will come up. Does it share
geographical presence?

The acquiring company may wish to consider co-location. Does it service the
same customers? Manpower deployment effectiveness may need evaluation. In short,
the greater the areas of overlap, the greater the complexity of integrating the
operations post merger. It therefore makes sense to look for an organization
that meets the specific need and does not carry with it the burden of deciding
what to do in the areas of overlap.

The immediate impact post-merger is the shift in focus from outward looking
to inward looking. Suddenly there is a need to rationalize everything to improve
the joint productivity of the merged organizations — manpower, infrastructure,
and systems. Each of these elements has to be evaluated in minutest detail to
identify redundancies. In case of information systems, complete overhaul may be
required. But the trickiest of these from an HR perspective, is the issue of
manpower rationalization — it is survival at stake!

CHANGING MINDSET OF EMPLOYEES

All of a sudden, the two organizations convert from an opportunity seeking
outward focused mind-set to a problem solving inward focused frame of mind. This
is indeed a change of gigantic proportions. And while we say that people are
resistant to change, this is one of those examples where people change in an
instant — unfortunately for the worse.

The people aspect of this change is the most crucial as it is the employees
who are the drivers of this change. While acquisitions and mergers hardly ever
have people productivity enhancement as a starting objective or as the main
reason for starting the process, it tends to become a major operational
objective — especially in overlapping organizations as discussed.

And that is when problems crop up. An atmosphere of distrust begins to
develop where everyone in a position of influence tries to protect himself and
sacrifice the other for a 'greater cause'.

MORE IS NOT MERRIER

Is it a question of getting too greedy? If the two organizations were
independently doing all right with all those people on board, could they not
continue in the same manner, post-merger? If it seems like a situation of 'too
many cooks spoil the broth', could not expansion into newer territories solve
the problem? Could the extra people not be deployed on projects for revamping
information systems and processes?

All these are situation specific issues, but worth considering. At the end of
the day, what is the cost of these 'extra' people to the organization
compared to the potential of damage that the scenario of uncertainty could
cause? In general, are we looking at the extra resources available from a
problem mindset or an opportunity mindset?

Efforts are generally made to communicate with employees and reassure them.
However, even a single action at variance with the communicated stance can
shatter trust and bring down performance levels. Add to this the fact that
people have more references of hyped up mergers that failed to deliver than of
success, and you are actually starting with a negative score. Needless to say
that transparency and trust are a must if the merger and integration is to be
effectively managed.

Since it is never a perfect world, I will not make the mistake of prescribing
simplistic solutions. The quality of decision making right at the initial stage
of merger will certainly go a long way in deciding whether the objectives will
be achieved or not.

The rest is about commitment, and how we can reconvert this problem solving
inward focused situation into an opportunity seeking outward focused project.
Couldn't prevent myself from getting simplistic, could I? Remember: If it
sounds complicated, it is unlikely that it is a great idea!

Sumeet Sharma is VP, HR
and Head of Training and Consulting Business at RT Outsourcing Services