HR-Orientated ODM in Mergers & Acquisitions

Good Organisational Design Management (ODM) can ease the birth pangs of new organisations and business processes. In particular, the early involvement of Human Resources-orientated ODM in all stages of mergers and acquisitions is important for success.

What's happened in the past

Mergers and acquisitions have often been the preserve of corporate financiers and lawyers in late-night boardroom deals. There are many examples of how such transactions have failed to deliver the expected benefits. Some deals were simply misconceived, poorly timed or overburdened with debt, but many were sub-optimised because of lack of attention to organisational design detail.

In both mergers and acquisitions, good intentions about combining "the best of both worlds" or achieving a "merger of equals" are unlikely to be fully realisable in practice. There will usually be a dominant party and with that the potential for conflict during integration. Even where the parties are evenly balanced, there is the risk of a corporate stand-off as each side seeks to exercise influence and control.

Size, complexity, sector differences, the extent of integration intended and, inevitably, time pressures mean that each merger or acquisition will bring its own specific challenges.
Differences of company history and culture may throw up problems; for example, transitioning a family-run business into a PLC or combining previously competing sales forces. Whenever major restructuring is involved, rumours will abound and anxious employees on both sides may inhibit progress and profitability.

The role of ODM

ODM professionals can play an important role at all stages of mergers and acquisitions - the planning phase, due diligence, framing contractual terms and post-completion implementation.

Phase 1: Planning the deal

ODM can help draft for Board approval the organisational shape envisaged for the new entity and the steps necessary for its realisation. Business cultural clashes or other critical issues for checking in due diligence may be highlighted.

Phase 2: Due Diligence

HR-orientated ODM specialists can be important members of the due diligence team.
To the extent that data is disclosed by the vendor, they may investigate:

  • current organisational design
  • personnel records
  • payroll systems
  • collective agreements
  • senior management contracts and responsibilities
  • current or pending employee disputes/tribunals
  • attitudes of key employees to the proposed deal

They can contribute to the realistic assessment of assets; for example, the extent to which value lies in retaining key personnel and their customer relationships, rather than simply taking over customer lists, databases, and other tangible assets

ODM specialists can add value to due diligence by;
- analysing the decision-making processes of the target organisation
- assessing the compatibility of personnel systems
- comparing compensation and benefits
- benchmarking relative productivity

Phase 3: Contractual terms

Assuming a “go” decision, the terms of the Sale and Purchase Agreement should not be left to lawyers and corporate financiers alone. ODM input can help protect against:

  • clauses binding the hands of Management as regards the pace of future organisational change, such as guarantees of continuing employment or the continuing operation of a given plant/office location;

  • underestimating the operational implications of legislation; for example, TUPE in the UK, and similar employment protection measures in the EU;

  • clauses inserted by vendors (or leaving the door open to actions by vendors shortly before closing) in respect of senior management contracts, notice periods, compensation in the event of dismissal, etc.

ODM can also contribute to the skilful construction of earn-outs and the definition of warranties about the accuracy of data supplied in due diligence.

Phase 4: Post-completion implementation

Effective post-completion management depends on speedy, decisive action, skilfully implemented; prolonged employee uncertainty can cripple morale and productivity.

The immediate post-completion implementation phase (say, the first six months) may be facilitated by deploying a senior task force, vested with full authority to take rapid action.

Key tasks for this team may be to:

  • give a Day1 presentation of credentials and intentions to all affected employees, not just unionised groups or representatives;
  • define and achieve key actions by declared deadlines; say, after 30/60/90 days;
  • ensure the retention of key staff, possibly with special incentives;
  • dismiss quickly and fairly those who have no future in the business;
  • integrate payroll, appraisal, compensation and benefit systems;
  • identify "quick wins" that foster a spirit of success;
  • manage communication flows, telling employees when milestones have been reached.

Longer time-scales will be unavoidable for major IT system changes, site closures/ relocations or significant investment projects; good HR-orientated ODM can help to define the optimal organisational evolutionary steps and grow the desired company culture throughout the whole process.