Acquisitions are notoriously challenging, and we are all familiar with the very public failures of such

transactions. Integration and obtaining synergistic value between two organizations is fraught with challenges. When you add cultural dissonance the entire process is at tremendous risk. But mergers and acquisitions also present an opportunity for HR professionals to shine through the successful integration of cultures.

In recent years, companies in the BRIC — a term coined by Goldman Sachs labeling Brazil, Russia, India and China — countries have used their newly acquired wealth and confidence to acquire distressed or strategic assets in the West. These acquisitions have been in commodities (oil, steel, gas and minerals), high tech-nology and pharmaceuticals. Acquisitions have provided companies with an easier entry into unknown markets and overcome brand or legislative barriers.

By Rajiv Burman, Jubilant Organosys

QuICk look

According to a KPMG study, “Eighty-three percent of all mergers and acquisitions failed to produce any benefit for the shareholders and over half actually destroyed value.”

A heavy-handed approach of imposing the norms of the acquiring will lead to a covert or explicit backlash including unionization.

Focus on understanding which people strategy in the acquired company made it a valuable asset to be acquired; assess practices in the industry, geography and legislative differences before making changes.

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Best Practices for Integrating Talent Across

Cultures & Geographies

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Acquired G7 (a forum consisting of the seven richest countries: France, Germany, the United States, Canada, Italy, Japan and the United Kingdom) companies include the Anglo-Dutch steel manufacturer Corus Group, which was purchased by India’s Tata for US$6.2 billion following a BRIC-led competitive bid between Tata and Companhia Siderúrgica Nacional of Brazil, and IBM’s PC business, acquired by China’s Lenovo Group for US$1.25 billion. Among other BRIC nations, Russia’s Severstal recently agreed to buy Esmark Inc.’s extensive steel manufacturing operations in the United States for US$775 million. India’s Tata Chemicals acquired General Chemical Industrial Products Inc. in the United States for just over US$1 billion in 2008, and Infosys signed an agree-ment to acquire McCamish Systems for US$38 million.

These acquisitions are not isolated examples. Both the KPMG’s Emerging Markets International Acquisition Tracker and research carried out by the United Nations Conference on Trade and Development report that BRIC-nation companies are increas-ingly willing to engage in mergers and acquisitions activity with G7 companies.

Of Fortune’s ranking of the top 500 global companies, 62 are from emerging markets, up from 32 in 2003. Despite the global downturn, 41 percent of the privately held businesses plan to grow through acquisitions in the next three years to acquire established brands or new technology, according to the 2009 International Business Report by Grant Thornton. In 2009, BRIC companies account for 15 percent of the world economy and 40 percent of the world population, and hold 42 percent of global currency reserves.

There will, invariably, be specific areas of friction between the company’s new head office and the newly relegated G7 branch office. According to a KPMG study, “Eighty-three percent of all mergers and acquisitions [M&As] failed to produce any benefit for the shareholders and over half actually destroyed value.” Interviews of more than 100 senior executives involved in these 700 deals during a two-year period revealed that the overwhelming cause for failure “is the people and the cultural differences.” Difficulties encountered in M&As are amplified in cross-cultural situations, when the companies involved are from more than one country. Global HR professionals

have an opportunity to build solutions and create business success through successful integration. This can lead to recognition at the board level for the value provided by the HR function.

Managing Integration of AcquisitionsThere are cultural differences among first-world countries, and between the old and new first worlds. At the extreme end are transactions between the G7 and third-world companies, some of whom are getting in the game for the first time. Since no two acquisi-tions can be the same, uniqueness due to the industry, local culture and expectations will require you to fine-tune this template.

Successful integration in acquisitions is possible when all areas of the process, people and technology are covered. This enables the acquiring company to ensure that it is able to realize the strategic plans behind the acquisition. But without a well-planned integration, the acquired company will falter, cause internal distraction and lead to value erosion. Given the large number of acquisitions in the past few decades, companies and consultants have developed tools for achieving cost reductions through business process improvements, consolidation and technology integration. But the field of people integration has received insufficient attention, and this has caused many acquisitions to falter. Although most companies recognize the value of people talent, it is the financial processes and technology integration activities that receive most of the focus and funds. Subjective, difficult-to-measure metrics, as well as lack of financial metrics on cultural integration complicate the picture. Companies routinely underestimate the value of integrating cultures and its stickiness. Increasingly companies

Global HR professionals have an opportunity to build solutions and create business success through successful integration.

workspan 02/1018

have realized the folly of this approach. Low morale, resignations, unionization, expensive retention Band-Aids, political infighting and outright conflict lead to a sapping of energy and an inward focus rather than competing in the market.

Steps to SuccessThere are three critical steps to achieve people integration in multicultural post-acquisitions. Successful integration requires significant change on the part of both the acquired and the acquiring company. A process of mutual adjust-ment and acculturation must take place for successful integration.

STeP 1: Understand the gaps

between the acquiring and acquired

companies in culture; train employees

for sensitivity.

Culture is the way things are done in an organization. It is the glue that binds its employees and enables the company to operate smoothly. Its manifestations are diverse — from decision-making to dress code — and it is built from the country’s and orga-nization’s values. A structured process like the Hofstede’s cultural assessment is a great starting point to understand the country’s cultural values.

Professor Geert Hofstede conducted perhaps the most comprehensive study of how values in the workplace are influenced by culture. Hofstede analyzed a large database of employee values scores collected by IBM between

1967 and 1973 covering more than 70 countries. He identified five dimen-sions to define culture. These are power distance, long-term orientation, indi-vidualism, masculinity and uncertainty avoidance. These elements are critical in understanding the large gaps among countries. Using Hofstede’s cultural dimensions as a framework in a cross-border acquisition will prove very helpful. Building on this framework, you can help create understanding and solutions like training, counseling, identifying communication and relationship pitfalls in advance.

The following provides an example of differences between cultures of India and the United States. (See Figure 1.)

India has power distance index (PDI) as the highest Hofstede Dimension for the culture, with a ranking of 77 compared to a world average of 56.5. This power distance score for India indicates a high level of inequality of power and wealth within the society. This condition is not necessarily subverted upon the population, but rather accepted by the population as a cultural norm. PDI is the most indicative dimension of managerial and corporate culture. India’s long term orientation (LTO) dimension rank is 61, with the world average at 48. A higher LTO score can be indicative of a culture that is perseverant and parsimonious. India has masculinity as the third-highest ranking Hofstede Dimension at 56, with the world average just slightly

lower at 51. The higher the country ranks in this dimension, the greater the gap between values of men and women. India is a male-dominated society, and generally male managers are more easily accepted than female managers. Hence, assertiveness, performance, success and competition are emphasized. India’s lowest-ranking dimension is uncertainty avoidance (UAI) at 40, compared to the world average of 65. On the lower end of this ranking, the culture may be more open to unstructured ideas and situa-tions. The population may have fewer rules and regulations with which to attempt control of every unknown and unexpected event or situation, as is the case in high-uncertainty-avoidance countries. This is reflected in a strong entrepreneurial spirit in India, creative solutions and an ability to think outside the rule book. It also leads to poor process mapping and documentation.

On the other hand, the values align-ment between Canada and the United States (see Figure 2) confirms the reason why integrating organization cultures between these two countries is so much easier.

After understanding these differences, it is important to establish a plan for sensitizing employees. This can be done through exchange visits of leadership team members, and key employees, organizing familiarization training for employees to build an appreciation of

Successful integration requires significant change on the part of

both the acquired and the acquiring company.

19 workspan 02/10

the differences. Doosan, a South Korean company, successfully used this method for its acquisition of the BobCat unit from Ingersoll Rand Co.

For the organization’s cultural gaps, observing, surveying, discussing and identifying different business practices is key to avoiding inefficiencies and in worst-cases clashes. Successful integration plans also include explicit, interactive feedback systems through work groups, task forces, etc., so that members of the “new” organization can learn what it means to be a part of the new company. For example, when HP and Compaq merged, HP required each operational manager to conduct a half-day session, with the support of human resources staff, on the differences between the two previous company cultures. The sessions revealed that HP staff typically used voice mail while Compaq’s people typically used e-mail. People from either side did not have the same ideas about how to collaborate, which lead to confusion and misunderstanding.

STeP 2: Build the new organization

and decision chart of authority

New organization charts and the accompanying decision charts of authority provide much needed clarity in the early days of post-acquisition integration. They also clarify the degree of operational interdependence or need for autonomy to retain the acquired companies’ competencies. There can be a complete preservation of existing structure, absorption or symbiosis of the two organizations.

Ideally, a detailed organizational chart will provide the business owner or manager with an accurate overview of the relationships of these units/responsibilities to one another and a reliable indication as to whether the firm is positioned to meet the business’s fundamental goals. Decision charts

are a key organization design element that helps acquiring companies avoid surprises, as well as the risk of being out of control and incurring future financial liabilities. “It is helpful to think of organizational design elements as building blocks that can be used to create a structure to fulfill

a particular purpose,” said Phyllis and Leonard Schlesinger in The Portable MBA in Management. Organizational design allows the acquired company to continue to operate in fast-moving markets without referring all decisions to the acquiring company. Most importantly it provides the acquired

FIGURE 1: THE 5D MODEl OF PROFESSOR GEERT HOFSTEDE — U.S. AND INDIA

PDI | power distance index

IDV | individualism

MAS | masculinity

UAI | uncertainty avoidance index

lTO | long-term orientation

❚ United States

❚ India

PDI IDV MAS UAI LTO

100

80

60

40

20

0

FIGURE 2: THE 5D MODEl OF PROFESSOR GEERT HOFSTEDE — U.S. AND CANADA

PDI | power distance index

IDV | individualism

MAS | masculinity

UAI | uncertainty avoidance index

lTO | long-term orientation

❚ Canada

❚ United States

PDI IDV MAS UAI LTO

100

80

60

40

20

0

workspan 02/1020

FIGURE 3 SAMPlE CHART OF AUTHORITY

Elements local office authorityAcquiring company authority

Adding headcount within approved budgets

Approves positions below direct reports of CEO. Head of HR and CEO approve.

Global HR and CEO head approve all positions in leadership team at local company.

HeadcountOversees replacement hiring due to voluntary and involuntary attrition.

Global CFO and CEO approve all headcount and budget variances.

Customer contactsNegotiate contracts within estab-lished financial metrics

Global CFO and/or CEO approve exceptions to financial metrics.

Compensation — merit and bonus

Approves distribution based on performance management program and bonus plans within overall pool. Leadership team jointly approves.

Compensation committee approves merit and bonus pool.

Vendor and insur-ance contracts

Head of HR and finance jointly sign off on new contracts within approved budget.

Approves budget.

401(k) planBoard delegates investment committee authority for plan administration.

Board approves all plan design changes and appoints investment committee.

FIGURE 4: PEOPlE STRATEGY

Rewards

Decision-Making

Information and knowledge

Managerial Structure

Work Processes

People

company’s managers a sense of control and empowerment — a much needed sentiment after having been acquired. Acquisitions lead to a sense of uncertainty and confusion. Clarity in decision making mitigates these feelings. HP and Compaq built a careful partnership, starting at the top, between both companies to make critical executive selections and organization structures in advance of the deal, and then announced their decisions shortly after the deal went through. This, among other integra-tion actions, helped make theirs a successful acquisition.

A complete organization chart will identify the new hierarchy and decision-making process f low. An accompanying chart of authority will cover elements of headcount, compensation, talent management, capital, expenses and employee relations (see Figure 3). Having taken over from Tata Liebert, coping with the challenge of change was surely the dominating concern for Emerson Power Network. And this drove the company into rolling out a set of people practices. This included creating a cross-functional team, empowering these teams to deploy a new organization structure in the organization, and making customer-centricity the focus of the complete HR action plan.

STeP 3: Build the new people strategy

This helps focus the acquired organi-zation on the future and understand the acquiring company’s vision. It avoids the negative outcome that comes from employees getting bogged down in comparing policy differences between companies.

Companies have to deal with the need to change policies and programs to align with the acquiring company philosophy and values. This is a tricky

21 workspan 02/10

process since employees are overly sensitive and losses to past practices and benefits can quickly lead to a drop in morale. Hence a wholesale substitution of the acquired companies’ programs by the acquiring companies’ programs could lead to employee relations problems, especially if the new programs are lower in value to the employee. Instead, focus on under-standing what people strategy in the acquired company made it a valuable asset to be acquired, and assess practices in the industry, geography and legislative differences before making changes.

Develop and paint the new people vision and strategy. Describing the path and process to get there will create a positive energy for employees. Involving employees and overcommunicating through all possible means — town halls, departmental meetings, Web site and e-mails — will be critical in quashing rumors, clarifying questions and selling the rationale. The acquisition is a major change for the employees, and you need to help them move from the fear to excitement phase.

The Lincoln Electric Co. based in Cleveland has a well-developed process to build an HR strategy linked to its

business strategy. Lincoln has grown through acquisitions and it has learned to build an HR strategy that reflects the cultural factors at societal and organizational levels.

People strategy must encompass six dimensions (see Figure 4). Long-term vision coupled with clarity on the basics of their employment relation-ship helps employees move higher up the Maslow’s hierarchy. Abraham Maslow proposed that human beings move up a hierarchy of five levels of basic needs. In the levels of the five basic needs, the person does not feel the second need until the demands of the first have been satisfied, and so on. These needs are physiological, safety, belongingness, esteem and self-actualization. For most business professionals satisfying the need for esteem and self-actualization are crucial to be able to operate at their productive best. See Figure 5 for an example of an HR strategy.

ABout tHE AutHoR

Rajiv Burman is the vice president of human

resources, North America, for Jubilant Organosys,

which acquired Hollister-Stier, Clinsys,

Cadista and Draxis businesses in the United

States and Canada. He can be reached at

rajiv_burman@jubl.com or 416-903-0493.

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[Aligning with the acquiring company] is a tricky process since ... losses to past practices and benefits can quickly

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FIGURE 5: EXAMPlE OF AN HR STRATEGY AT A NUClEAR REACTOR SUPPlIER

This has been identified using the strengths of both organizations. The intent is to build on the success of both companies.

We will aim to hire, retain and train best-in-class nuclear engineers and develop the world’s most reliable and safest nuclear reactor design.

Employer of Choice

Achieve Gallup score of 70+ and be •recognized as a “Best Place to Work.”

Achieve a zero-incident safety record •at every plant.

Invest in training and development •at 4+ man-days per employee.

Acquire and Retain High-Performing Talent

Create a strong employer brand.•

Target pay and benefits at 50P •for “Meets Expectations;” 75P for “Exceeds Expectations.”

Hire for cultural fit.•

Have a compliant, equitable and fair •professional environment.

Pay for Performance

Performance incentive programs to cover •100 percent of salaried employees

Employee growth based on performance.•