Thursday, December 20, 2007

dragons at the gate.....

howdy do folks! I know, I know...I shouldn't. Not heavy stuff on a raya day! heheh. Just a watercolour splash of oscar wilde and hmmm...I just couldn't resist wanting to share the article below that I came across from the SHRM website. There's this old corporate adage: 'when the going gets tough, the tough gets going'. Looks like everyone is in a holiday I shall not spoil it...but then again, reading the article below won't do you any harm anyway, in fact it would be good so you would always be mindful that nothing lasts forever and that at least you can welcome the new year...with some trepidation...or be at least prepared for a worst-case scenario and take the necessary action...well options rather, if you have lah! that you tak tekezot berok!!!... enjoy the read....hihi

The Correct Spelling of M&A Begins with HR
Degree of HR participation directly linked to success in mergers and acquisitions, a finding that opens new doors for the profession at a critical time
By Jeffrey A. Schmidt
[ Determining what drove the deal Clearing the hurdlesGetting in at the beginning A look at the futureWinning a seat at the table]
Order the book "Making Mergers Work".
A recent, extensive survey on merger or acquisition activity shows that there is a direct correlation between HR involvement and M&A success. It further suggests that the earlier HR is involved in the process, the greater likelihood of success.
The survey was sponsored by the SHRM Foundation and conducted by my firm, Towers Perrin, a worldwide consulting organization with a strong HR orientation.
The survey, which involved about 450 senior HR executives at major corporations, focused on several key issues:
the degree to which the desired synergies driving the mergers or acquisitions had actually been achieved
the major obstacles to their achievement
the ideal levels of HR involvement at every stage in the M&A process
the individual HR competencies needed for the ideal involvement
Most people who study M&A's divide these transactions into four distinct phases: pre-deal (selecting the target); due diligence; integration planning; and implementation. Our survey showed that HR involvement was heaviest in the two later phases.
In addition, the survey explored the best practices for HR professionals in M&A's. Our purpose was to provide a descriptive framework for successful transactions and the ways in which HR can and should participate in the process.
In determining success, we asked the respondents to list the five major synergies that had driven a particular transaction. A score of 4.0 or more on a five-point scale would indicate success. A score of 3.2 to 3.9 would translate into partial success. And a lower score would indicate some degree of failure. Based on those criteria, 43% of our respondents reported success, 33% achieved partial success, and 24% of the mergers or acquisitions were failures.
In addition to showing the direct correlation between HR involvement and M&A success, the survey surfaces an implicit finding that is, in my opinion, equally important. At a time when many trends are having an adverse impact upon the more transactional aspects of the corporate human resource function, mergers and acquisitions present a superb opportunity for HR to demonstrate its strategic value to the company. If HR people are able to demonstrate that their unique set of skills can make the difference between success and failure in mergers and acquisitions (and this survey strongly suggests that they can) the profession will occupy a stronger position than ever.
Determining what drove the dealAs noted earlier, success in an M&A is determined by the achievement of the desired synergies. What are those synergies? Growth in market share was the primary motive for 82% of respondent companies. Leadership in industry consolidation was second, cited by 68%. Enhanced brand strength and reputation was ranked third, noted by 55%. Reducing overhead/operating costs was the fourth most important synergy (46%).
How close did our corporate sample come to achieving those synergies? In order to answer that question, we conducted a "gap" analysis, quantifying the difference between aspiration and achievement. For instance, among the companies for which growth in market share was the determining factor (82% of our respondents), only 49% of those organizations actually achieved that objective — a gap of 33%. For those that intended to achieve leadership in a consolidating industry, the gap was 21%. And for the companies focusing on enhanced brand strength and reputation, the gap was 22%.
These sizeable gaps were the result of failure to overcome key obstacles. Our respondents told us that the major roadblocks on the route to M&A success were inability to sustain financial performance (64%), loss of productivity (62%), incompatible cultures (56%), loss of key talent (53%) and clash of management styles (also 53%). It should be noted that three of these five are clearly HR issues. And they all come into play during the two latest stages of a merger or acquisition — integration planning and implementation.
There was near unanimity among our respondents as to the powerfully negative effects of a failure to achieve cultural compatibility. A VP at a telecom company told us: "So far as our senior management is concerned, culture simply isn't on the map." And a senior VP at a financial services organization said, "HR needs to grab the moral authority over cultural issues, ahead of the merger, by preaching to executives the importance of those issues."
Our survey suggests that one reason for the inability of so many acquirers to overcome those obstacles is insufficient planning. Companies that reported failure in the achievement of their desired synergies tended to underestimate those obstacles when developing their M&A strategies. As that former electronics executive put it. "When it comes to people issues, most mergers and acquisitions are incredibly poorly planned by the chief executives."
Clearing the hurdlesWe asked our sample of HR executives to list the core capabilities needed to overcome those obstacles to M&A success. The five cited most often were:
the ability to evaluate another company quickly (89%)
M&A (and general business) literacy and integration know-how (87%)
providing advice as to employee sensitivities and attitudes (86%)
motivating and retaining critically needed talent (83%)
planning and leading complex integration projects (82%)
Commenting upon the importance of quick and accurate evaluation, an HR executive at an energy company told us, "Speed is crucial. We try to get the first three stages of the deal done in 30 days — the pre-deal, the due diligence and the integration planning."
As to the need for M&A and business literacy, that former electronics executive offered this comment: "One reason HR executives have trouble getting their recommendations through senior executives and boards of directors is the lack of business breadth that's typically characteristic of people in HR."
We also used "gap analysis" to determine the difference between aspiration and achievement. Overall, only half of our respondents believe that their HR organizations possess the capabilities needed to play a strategic M&A role. The largest gaps were the ability to evaluate another company (32%) and M&A (and general business) literacy and integration know-how (31%).
Most respondents cited the importance of the same capabilities, but those at successful firms came closer to achieving those capabilities.
How can HR people attain business literacy and the other core capabilities needed to achieve full partnership in the M&A process? On-the-job training is certainly important. The more deals you're involved in, the more skills you'll develop. But a strong educational background is at least equally valuable. The SHRM certification programs cover all of the capabilities that came to light in our survey, and those programs are available to all members on a regular basis.
Getting in at the beginningOur survey bears out the well-known and (among HR people) widely lamented fact that their involvement in mergers and acquisitions is limited, for the most part, to the two phases at the back end of the deal: integration planning and implementation. In the opinion of our respondents, they should be involved in all four stages.
One of our interviewees, a human resource executive at an energy company, put it this way: "Typically, our company invites HR to sit at the table very early in the process. We have a lot of credibility because of the number of deals we have done and the value that HR has put forward during those deals."
In the pre-deal phase, HR people were involved 21% of the time in successful M&A transactions. That's not a very high percentage, but it compares quite favorably with the 12% figure reported by the HR people whose companies were unsuccessful in M&A's.
A senior VP at a retailing organization described an acquisition about which she had major reservations: "The head of the operating division that was championing this deal was annoyed at my attitude and did his best to keep me out of all the meetings to plan the deal. In most cases, I wasn't even notified. But I wouldn't let up. I walked into those meetings unannounced, and I set forth my reservations. I told them about the risks involved, but rather than taking a negative attitude, I said, 'let's figure out right now how to deal with those problems during the integration process.' My persistency — and the important points I made that nobody else had noticed — earned me a seat at the table as a full and value-adding member of the deal-making team."
During the due diligence stage, HR people were involved in 72% of the successful deals and only 39% of those that failed. One of our respondents told us about a potential transaction in which the chairman was surprised to learn that at the organization they were about to acquire, the ratio of retirees to active employees was 7 to 1. And those retirees were all drawing benefits. "Management clearly hadn't thought through the pension funding implications of those demographics," our interviewee said. "The moral here is that HR can help to do critically focused due diligence."
The vice president of a plastics company offered this formula for success: "To be an effective part of the due diligence team, you need to understand your own business very well, both the overall business strategy and the specific HR issues. You need to understand why your company does things the way it does, and then you need to learn why the target company does things the way they do. This give you the complete picture."
In integration planning, HR participation among the successful dealmakers was 85%, compared to 53% for the unsuccessful companies. In this, as in all other phases, there is no single formula that works for all companies, but here is an approach that a VP of HR at a manufacturing company recommends: "I've learned from my experience in M&A that it's important to interview senior management of the acquired company as soon as possible, to establish a sense of their leadership. In addition, it's a good idea to make a list of the other company's best practices and your own, and then compare the lists for similarities, differences or things that the other company might be doing better."
In the implementation phase, successful companies reported 87% HR involvement, compared to 73% for those that failed. One HR professional told us about an approach he finds particularly useful: "Most changes should be spaced out evenly, but takeaways should all be done at once, if possible."
A look at the futureThe good expect to get better. Eight out of ten respondents (81%) employed by companies with success in M&A's told us that top management is confident that their HR function is fully prepared to support successful integration. For companies in unsuccessful mergers and acquisitions, management's confidence level in HR's ability to deal successfully with M&A integration issues is only 50%.
The professionals we interviewed offered some ideas about HR priorities for future M&A activity. Everybody agreed that the most important task is defining the integration philosophy, process and timeline at the earliest possible date. Other important priorities cited were optimizing the impact of communications, mapping cultural differences, aligning HR policies, securing resources, resolving organizational issues at the outset, and defining a rewards strategy.
Everyone agreed that the most appropriate role for HR is as a strategic business partner. "But in order to accomplish this," said a senior vice president with an aircraft manufacturer, "HR professionals need to spend more time talking with operating management than they do with each other."
Another key role mentioned by many respondents was serving as an adviser to executive management. The integration manager at a software company told us, "The best way for HR to contribute to M&A is to be viewed as an internal consultant."

Winning a seat at the tableOur survey — and everything else I've experienced or heard on the subject — makes it clear that most mergers, acquisitions and other corporate transformations do not achieve the desired level of success. The survey also bears out what many HR professionals have always believed: there is a direct correlation between the level of HR involvement and M&A success.
Therefore, HR needs to win a seat at the table in all M&A deals. This involvement should cover all phases, including the first two — pre-deal and due diligence. In the words of the compliance and integration manager at a technology company, "I codified and standardized methods and procedures for HR due diligence. This demonstrated that I was a value-added contributor and got me a seat at the deal table."
HR especially needs to get involved in overcoming the obstacles of incompatible cultures, low productivity and the inability to manage and implement change. But — again as our respondents told us — HR must develop broader capabilities in order to win that coveted place at the deal table.
The most important of those capabilities is business literacy. As that SVP of the aircraft company told us, "HR must understand M&A economics and know how to dig out the information necessary to analyze whether there are significant people issues that could compromise those economics. If HR demonstrates competencies of that kind, executive and operating management will knock down their door to get them involved throughout all stages of the M&A process."
The survey also tells us that there is a direct link between capabilities and obstacles. The most robust M&A capabilities are those that address the most important obstacles.
Those are the major conclusions that can be drawn from the survey. I want to close with some conclusions of my own, based on the survey and on my firm's considerable experience with mergers and acquisitions and other issues confronting human resource professionals.
HR is currently at a crossroads. Several trends — web-based technology, the growth of HR outsourcing and the consolidation of major industries — are threatening the future of the traditional transaction-driven HR function. These trends make it vitally necessary for HR to seek new, more strategic opportunities for performing the people-related functions that are the profession's birthright and its very reason for being.
At this critical juncture, M&A's can provide a superb opportunity. For instance, one of the adverse trends I just noted — the consolidation of major industries — can prove to be an advantage to corporate HR departments that have demonstrated skills in M&A's.
For almost any corporation, a merger or acquisition is a major gamble — sometimes with the company's entire future at stake. If HR can demonstrate its value in this high-stakes game, the entire profession will be strengthened. HR professionals will move up in the management structure, occupying key positions as advisers to the people who make the vital decisions.
Because of economic changes, there is a developing convergence among strategic planning, financial strategy and people management. With a strengthened position resulting from successful participation in M&A's, HR can play a bigger role in all three areas.
But in order to achieve any of those goals, HR must assert itself, demanding a role from the very beginning of every M&A deal.
As the vice president of a manufacturing firm told us, "To get a seat at that table, HR professionals need to be more aggressive. They need to have a grasp of the business they're in, and they need to show that their skills are necessary for a successful transaction. They have to demonstrate that HR is vitally necessary throughout the M&A process."
Order the book "
Making Mergers Work".
Jeff Schmidt is a managing director at Towers Perrin, a worldwide consulting firm that focuses upon both M&A and HR issues. Survey results were collated and analyzed by Jessica Saban-Francis, the firm's director of research.

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