HR Challenges in Mergers & Acquisitions

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Mergers and acquisitions (M&A) can happen across all sectors, but are generally most frequently seen in the technology, healthcare, and financial services sector. The latter saw a 7-year high for mergers and acquisitions last year in the UK, but it was not alone as a sector seeing an increase in this kind of activity.

Since the pandemic, the number of mergers and acquisitions (M&A) has increased demonstrably, despite the impact on the economy. The low-interest rates in 2020, the proliferation of technology to conduct all elements of business remotely, as well as organisations being ‘deal-ready’ to take advantage of any new opportunities, have meant that companies are chomping at the bit to increase their global presence. In fact, according to Nasdaq’s figures, new projects on its platform are up 32% since the start of the year.

Organisations merging with or acquiring another entity inevitably leads to a period of transition, and has the potential to create friction and disruption for HR. An essential part of this transition is the onboarding of new employees, and sometimes in large numbers too. Because of this, HR teams need to make this tranisiton as smooth and seamless and possible to help everyone hit the ground running.

Indeed, HR plays a vital for in the process of mergers and acquisitions, from integrating new leadership to communicating with employees across both merging businesses, there is the potential for Human Resources teams to struggle with the integration of the two organisations. The role of the people function is critical, and the approach taken by HR leaders can mean the difference between a smooth transition and bumpy, difficult process.

Let’s explore the challenges that HR teams typically face during mergers and acquisitions.

HR Challenges in Mergers & Acquisitions

Assessing Cultural Differences

Two entities merging does carry the risk of cultural issues and potential conflict. No two businesses are exactly alike in terms of their company cultures and the way they approach the nature of their work. One business may have a focus on product innovation or customer service, while the other may be more focused on making sales.

One business may take a more relaxed and laid-back approach, while another may have cultivated a culture that thrives under high pressure.

Even the way that two organisations approach decision-making could be different. One may employ a rigid hierarchical system where all decisions are made from the top down, while another enjoys a more collaborative, democratic method of decision-making.

For HR, whatever the differences between the two cultures, they place a crucial role in figuring out if the two different cultures are even compatible and then working to ensure the integration of these different approaches.

Merging two separate cultures requires understanding the demographics of the different workforces, analysing the working methods, and understanding the common ground between the values of the two entities to create a foundation for the two to come together.

HR leaders need to look at their people strategy from multiple angles – that means examining both the negatives (the cultural elements that will need careful consideration) – and the positives (what aspects of the company values and mission will blend well). Then it’s about creating a new culture that will enhance the emerging company and help it achieve its strategic business goals, after all, that is the point of any new business relationship.

Assessing People, Talent, & Skills

As we noted earlier, no two cultures are alike. And equally, no two mergers or acquisitions are alike either. The process that businesses go through will be radically different every time. In some cases, this means that there will be no personnel and staffing changes. In other cases, people across both merging organisations can be drastically affected.

Merging with or acquiring other entities presents a big change, and employees can be rightfully worried about what those changes are going to mean for their job security.

Restructuring is an inevitable part of the process. This means identifying skill gaps between the two merging organisations, but also unfortunately, this requires recognising that there will be double ups of skills, leaving the newly joined organisations with too many people skilled within certain areas of the business. A consequence of having too many people with certain skills is that redundancies could be possible.

Any steps made towards making people redundant must be exercised with extreme caution. Not only can any signal that redundancies may be likely will severely impact employee engagement and experience and could have the unintended consequence of causing talented employees that the business wants to retain to look for other opportunities elsewhere.

The other issue for Human Resources teams is that there are regulations that must be complied with in terms of protection of employment, making this an extremely delicate area for several reasons.

Negative employee reaction can be normal, and HR must be clear and transparent with their communications to all employees to maintain trust during the transition and ensure compliance.

Post-Acquisition System Integration

Mergers and acquisitions pose significant HR issues (and issues beyond Human Resources) because of the need to merge or accommodate a plethora of different software systems post-integration.

Both original entities will have numerous different systems – with likely little overlap – in place to manage different corporate functions, and many of these problems sit outside of HR to resolve effectively.

But for HR, the problem will be how to manage the crucial people functions with a patchwork of different HR systems handling everything from performance management, absence and leave, and training requirements. And that is not even including other critical functions such as payroll.

It is critical to build a strategy that encompasses how the different entities can move forward once merged that outlines both what and how the HR and payroll software will be used across the new organisation.

In theory, working to integrate the different systems may make sense, but in practice, businesses risk having a mishmash of different systems all handling the same critical roles that can lead to time-consuming headaches for HR departments.

The fragmented patchwork of different solutions can frequently lead to unreliable data and a lack of actionable insights. Worse, the potential for duplicated data risks human error, repeated work, and business inefficiency.

Due diligence is required on behalf of the businesses involved in the merger or acquisition to get the right HR strategy in place and make a firm decision on what software should be used moving forward.

The benefit of having a single solution is that you have a single source of truth for your people-related data. For the new organisation, this is crucial, because post-merger, the business will need to be able to have reliable information it can trust to handle compensation, change management, and other HR challenges.

Many organisations can wind up with an array of poorly integrated software solutions – mergers and acquisitions are not the only reason, but they certainly exacerbate the problems. Whatever the reason, having to duplicate data in multiple systems or pull various bits of data from disparate systems can be frustrating and time-consuming.

With a comprehensive, single HR solution, organisations gain a single source of truth, with all information located in a single platform. This means that data can be pulled more quickly and easily, allowing for improved, data-driven decision making and more comprehensive reporting.

Choosing a solution which allows employee self-service options also make a key difference, reducing time-consuming HR enquiries by up to 70% and freeing HR teams to focus on retention, compliance, and other key issues during the merger or acquisition process.

And this isn’t just contained to managing employee data. At XCD, our goal was to create a powerful single solution for HR and Payroll, helping your Human Resources team to manage rewards and benefits with a powerful employee-recognition software. This way, organisations are guaranteed a smooth and successful integration following a merger or acquisition. If you are interested in trying out our software out for yourself, book a demo today.