Acquiring companies that are navigating mergers and acquisitions will benefit from dedicated human resources M&A leadership. This strategic role ensures alignment between human capital and business objectives, significantly improving the likelihood of successful integration.
According to a Harvard Business Review analysis, between 70 to 90 percent of mergers and acquisitions fail to meet their objectives. While M&As fail for many reasons, failure often stems from inadequate cultural alignment, unaddressed employee concerns, or inability to retain key talent.
Having led HR M&A functions through more than 40 mergers, acquisitions, and divestitures, I’ve witnessed firsthand the critical importance of strong HR leadership throughout the entire process — from due diligence through post-close integration and acculturation.
While M&As typically aim to achieve product diversification, market expansion, scaling, or technology acquisition, these objectives ultimately depend on a well-developed and executed strategy surrounding human capital, culture, business objectives and more. This blog explores the strategic role of HR leadership in M&A transactions and how to maximize the value of this critical function.
The Strategic Role of HR Leadership for an M&A
As a business leader, whether you’re a CEO or chief human resources officer (CHRO), you’re accustomed to executing multiple strategies that require planning to increase the likelihood of success. However, what’s true for day-to-day business strategies is even more true for M&A transactions. Once a deal is announced, the time for planning ends. Your HR team must now hit the ground running.
The first step is understanding the deal’s rationale and what a successful integration will look like. This understanding allows HR leadership to develop HR integration strategies that align with and enable business objectives. Key considerations include:
- Whether the deal expands existing markets or product offerings or establishes new ones
- The need, desire, and appetite to integrate teams and cultures from both organizations
- Financial assumptions regarding expense targets
- How roles in both organizations will change after the deal
- How key talent — whether leaders, managers, or subject matter experts — will be identified and retained, and whether the retention is short- or long-term
- How to harmonize compensation philosophies and practices
Aligning these factors requires multiple strategies and success metrics, frequently demanding that the HR team manages complex M&A responsibilities alongside daily operations.
The Qualities of Effective HR Leadership
Leading employees through the deal cycle is rewarding, but it can also be challenging and time-consuming. Ideally, HR leadership for M&A should possess:
- Broad HR Knowledge: Comprehensive understanding of all HR functions, including workforce planning, organizational design, talent management, compensation, benefits, change management, human resource information system (HRIS), employee communications, and more
- Executive Presence: Ability to represent HR to executives of both companies while leading their teams and ensuring that all functions are working cohesively
- Information Processing: Capability to assimilate large quantities of information quickly and to make strategic decisions
- Accountability: Comfort with meeting deadlines and holding others accountable for meeting theirs
- Empathy (But With Business Focus): Capacity to demonstrate empathy while understanding and driving required business outcomes
- Communication Skills: Clear, honest communication, even with unpopular messages, to promote organizational trust
The HR M&A leader must remind stakeholders that employees from both companies will likely experience a great deal of change that they didn’t choose. Additionally, those working for the acquired organization likely don’t know your company, culture or leadership beyond reputation and online research. Keep that perspective in mind to ensure that conversations and communications are clear. Don’t overuse your organizational lexicon (terms and acronyms only known to your employees), and ensure communications educate and inform.
Understanding Cultural Alignment
No two organizations are alike. Only by documenting your own corporate culture can the HR M&A leader understand gaps between organizations. Important cultural components to assess include:
- How and how often each organization communicates with employees
- The level of transparency
- The amount of employee empowerment in decision-making
- Formal and informal power structures
- Each organization’s employee value proposition (EVP)
Taking the time to ask leaders why employees join and stay with your organization can reveal mismatches between organizational culture and employee expectations. Though leaders’ subjective responses may be harder to interpret than quantifiable factors like benefits or compensation, their insights can help avoid serious problems, from turnover and deteriorating relationships to mistrust, performance issues, and even public complaints. The HR M&A leader must then implement critical change management efforts while keeping the lines of communication open to reduce anxiety and maintain productivity during the transition period.
The Importance of Workforce Management
M&As happen for various reasons, but they all require HR to effectively manage the workforce on both sides.
For example, let’s say diversification is the goal: Company B makes a product Company A needs for market growth. Incorporating new products into existing business channels means HR will need a strategy to retain associates who develop, support, and sell those products. Some functions may be integrated into the acquiring organization, reducing or eliminating roles from both organizations to create operational effectiveness and efficiency.
Entering a new market requires HR to evaluate many of the same factors as a diversification strategy. HR leaders also need to decide how to structure the market leadership team. This often involves blending key members of the acquired team who understand market dynamics and have important local relationships with personnel from your organization who understand how to work within your operational and cultural norms.
Strategic Talent Management
Because years can pass between M&A activities, institutional knowledge may be lost as people move to different roles or leave the organization. The HR M&A leader must guide the HR team through complex, detail-oriented, and deadline-sensitive activities during challenging and emotional times.
Developing effective talent management strategies requires understanding deal strategies and success metrics even after many areas have returned to “business as usual.” Metrics to monitor integration health should include standard HR measures like turnover, plus metrics tied to specific deal goals.
These metrics serve as an early warning system that identifies issues and provides opportunities to make changes before problems escalate. Even financial success metrics have direct links to HR outcomes. That illustrates the need for an effective HR M&A leader to help build and execute workforce management strategies with strong organizational design, compensation, and retention plans.
Throughout integration planning and execution, unexpected issues will arise: New information may impact decisions already made. Strategies may change based on talent retention success or technology acquisition. Regulatory approval may present unanticipated challenges.
The HR M&A leader must ensure contingency plans are ready for new information, challenges, or direction changes, while ensuring employees receive timely communication and have channels to ask questions or express concerns.
When to Consider Fractional HR Leadership
Who in your HR team best meets these criteria? In some organizations, the CHRO will lead M&A efforts. In others, it will be a key HR leader with the right competencies.
If your HR team has strong leadership but lacks M&A experience, or if you can’t free up internal resources, consider engaging a leader on a contract or fractional basis to provide hands-on leadership while transferring knowledge to help HR build a playbook for future deals.
As TechCXO describes, the role of HR in M&A “demands strategic finesse, especially when blending diverse work cultures and employee groups,” with the fractional HR leader being “critical in assessing, redesigning, and standardizing practices in organizational design, compensation, performance management, and talent development to support a harmonious blend of cultures and operational philosophies.”
Whether you choose full-time or fractional HR leadership, someone must assume the HR M&A lead role to ensure a smooth merger or acquisition. Without this leadership, reaching “business as usual” will take significantly longer.
Empowering the Right HR Leadership for an M&A
I cannot overstate the strategic importance of dedicated HR leadership for your M&A. This pivotal role serves as the bridge between human capital considerations and business objectives during one of the most challenging periods of organizational change. By identifying and empowering a skilled HR leader — whether internal or fractional — organizations dramatically improve their chances of successful integration.
The right HR leadership brings technical expertise across the HR spectrum as well as the emotional intelligence, communication skills, and business acumen needed to navigate complex organizational dynamics. This leadership enables companies to retain critical talent, align cultures effectively, and maintain productivity through transition — directly contributing to the financial success of the deal.
As M&A activities continue to shape the business landscape, organizations that recognize and invest in strong HR leadership will distinguish themselves through smoother transitions, faster returns to productivity, and, ultimately, more successful deals that deliver on their promised value.
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