The Role of Human Resources Management in Mergers and Acquisition

A Project Report presented to

Mrs. Farida Virani

Faculty Member SVKMS NMIMS University Mumbai On March 12, 2008 In Partial fulfillment of the academic requirements for the MBA-Services Management Programme By

Mr. Garv Arora (30)

Preface

As a student of MBA-Services Management specializing in Human Resources Management, I wanted to undertake a project report that would deal with the Services sector as well as H.R Management. The subject was chosen after critically analyzing the roles of the H.R Department in totality, recognizing the roles that are not part of daily routine and yet one of the most important roles of the department. After short-listing my options, I have chosen this particular project title purely due to my interests to understand and analyze the M&A process and the role H.R Department plays in it. One cannot disregard the importance of Mergers and Acquisitions in todays context of globalization where competition in fiercer than ever and where organizations work on the philosophy of Eat or be eaten, rather than Live and let live. Thus there is a need for H.R aspirants to understand how to deal with the M&A process, as they cannot afford to go wrong. Inability to create synergy in the organization post Merger/Acquisition can result in the downfall of the organization as a whole. Thus, I believe that undertaking this project would greatly help me to understand the M&A complexities and prepare me to deal with the same, on entering the industry.

Mumbai, India. 12th March, 2008

Garv Arora.

Acknowledgement

I would like to thank Ms. Farida Virani for her support and expertise throughout the process of this report making, without the guidance of whom the project would not have been possible. I would also like to thank all the employees from several organizations that participated in the interview process, shared their knowledge, views and expertise and helped me understand their role during the Merger & Acquisition process. I would like to thank the H.R personnels from the following organizations: Centurion Bank of Punjab Hotel Sun-n-Sand, Pune Jet Airways HDFC Bank Kingfisher Airlines

Garv Arora.

Executive Summary

This report begins with a brief introduction about the current scenario of the mergers and acquisitions taking place in the world. It then goes on to address the major issues faced by an organization during the M&A process ranking in terms of percentage. For example, Inability to sustain Financial objectives 64% etc. (See page 9). The Research Methodology includes preparing a questionnaire for gathering qualitative rather than quantitative data, interviewing a total of 12 candidates from 5 organization that have undergone Mergers/Acquisition recently, gathering data, analyzing the data and finally reporting the same. The report also contains theoretical views on M&A management. There are several case studies where organizations have understood the process and gained; and also instances where the organizations have failed to achieve objectives due to their inability to create the cultural fit. The data is reanalyzed, this time by comparing it to the data available due to secondary research. The two are compared and their results are gathered in order to determine the consistency and validity of the results achieved through the primary research. Lastly, the observations are made and the results portrayed. Following the results are a few recommendations. The results of the study are mentioned below: Results: Particullars/Research Strikes witnessed Post M/A Financial Perf. Entry phase of H.R Sustainability of Profits Primary Research 1 out of 5 Co.s (20%) 50% Co. perf. Average & 50% Co. perf. High Mostly Post Merger Mostly unable to sustain good performance Mostly Financial/capturing market share Few employees layed off Secondary Research 2 out of 4 Co.s (50%) 25% perf. Low 25% perf average & 50% perf high Mostly Pre Merger Equal proportion of sustainability & nonsustainability Mostly international expansion Mass lay-offs

Reasons for M&A Employee Lay-off

Recommendations:

Train managers on the nature of change Technical retraining. Family assistance programs Stress reduction program Meeting between the counter parts Orientation programs Explaining new roles Helping people who lost jobs Post merger team building Anonymous feedback helpline for employees

Table of Contents

Preface Acknowledgements Executive Summary List of Tables, Graphs & Figures Chapter 1: Introduction and Research Methodology 1.1 1.2 Introduction M&A Facts and figures

(i) (iii) (iv) (vi) 8 8 10 13 13 13 13 13 14

1.3 Research Methodology 1.3.1 Research Objective 1.3.2 Research Methodology 1.3.2.1 Primary Data 1.3.2.2 Secondary Data 1.3.3 Assumptions

1.3.4

Limitations

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Chapter 2: The M&A Life Cycle 2.1 Phases of the cycle 2.2 H.R Issues during M&A 2.2.1 Pre Merger 2.2.2 Post Merger

15 15 19 20 22 26

Chapter 3: Managing M&A

Chapter 4: Case Studies

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4.1 HLL & TOMCO 4.2 Glaxo &WB 4.3 Kidz Corner & Kamala 4.4 GE Strategy 4.5 CISCO Strategy 4.6 Shangri-La & Ritz Carlton Chapter 5: The Role of H.R.M in Cross-Border M&As Chapter 6: Organization Profiles 6.1 Primary Research Profiles 6.2 Secondary Research profiles Chapter 7: Findings and Recommendations 7.1 Findings 7.2 Recommendations 7.3 Conclusion Annexure AA: Questionnaire Bibliography

30 30 30 31 31 32 37 40 40 41 43 43 49 51

AA-1 B-1

List of Tables, Graphs & Figures

Tables:
Table 6.1: P&G and Gillette Comparison chart Table 7.1: Primary Research Findings Table 7.2: Comparison on Primary & Secondary research finding 42 43 49

Graphs:
Graph 1.1: Success and failures of organizations in different M&A phases Graph 1.2: Worldwide announced M&A Graph 1.3: Organizational Synergies achieved VS Synergies Targeted Graph 7.1: Strikes Witnessed (Primary Research) Graph 7.2: Financial Performance (Primary Research) Graph 7.3: Percentage of employee lay-off Graph 7.4: Reasons for M&A Graph 7.5: Strikes Witnessed (Secondary Research) Graph 7.6: Financial Performance (Secondary Research) 11 12 12 44 45 46 46 47 48

Figures:
Figure 1.1: M&A Facts Figure 6.1: Centurion Bank & BoP Merger figures Figure 6.2: Kingfisher Airlines & Deccan Aviation Merger figures Figure 6.3: Jet Airways & Air Sahara acquisition figures Figure 6.4: HDFC & CBoP Merger figures 10 40 40 40 40

Figure 6.5: Sun-n-Sand & Holiday Inn, Pune Acquisition figures Figure 6.6: Tata Steel & Corus Acquisition figures Figure 6.7: Mittal Steel & Arcelor Merger figures Figure 6.8: P&G & Gillette Acquisition figures

41 41 41 42

Chapter 1: Introduction & Research Methodology

Introduction
Since the 1980s, the world has been witnessing a wave of corporate mergers and acquisitions (M&A) that has been driven by dramatic changes in the global business environment. This fundamental economic restructuring is expected to continue for some time. Mergers and acquisitions are undertaken to fulfill various corporate objectives. They may be intended to reduced the likelihood of hostile takeovers, to diversify risk, or to achieve competitive advantage through synergistic efficiencies. They may involve merely integrating accounting functions and creating a new legal entity, or, at the other extreme, they may involve integration of capital assets, functional departments, and human resources. Although they are undertaken for good reasons, the research shows that many high-cost mergers and acquisitions fail to provide the anticipated rewards. It is suggested that one-half to two-thirds of all mergers simply do not work. and that 30 percent of all acquired firms are sold off within five years and that 90 percent of mergers never live up to expectations. In an attempt to understand the reasons for the high failure rate, more recent M&A research has focused on human resource activities, particularly during the integration phase. Unfortunately, empirical studies relating to this topic seldom reach consistent conclusions. Furthermore, most studies do not explicitly link the various strategies pursued in mergers and acquisitions with the degree of success that is eventually obtained. Nevertheless, it is clear that human resource issues are generally under-managed, poorly understood, and often discarded at the outset as irrelevant to the strategic planning process and that a better understanding of human resource issues in the integration stage of mergers and acquisitions could help them succeed. A merger of the size like HP-Compaq has implications for the workforce of these companies across the globe. Although the merging entities give a great deal of importance to financial matters and the outcomes, HR issues are the most neglected ones. Ironically studies show that most of the mergers fail to bring out the desired outcomes due to people related issues. The uncertainty brought out by poorly managed HR issues in mergers and acquisitions have been the major reason for these failures. HRs role during the transaction is to lead decision processes, execute the transaction, and prepare the company for integration. A representative of HR should be assigned to the transaction and take accountability for transaction decisions as well as build relationships with the target company.- Deloitte Consulting LLP.

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HRs mission in supporting acquisitions: Identify, evaluate, and dispose of transaction-related concerns Serve as the primary point of contact for HR processes Deliver a single coordinated employment solution for acquirer, acquired, or divested company

HR Management support of an acquisition supports six primary objectives: Execute the transaction Maintain organizational focus Retain key skills Accelerate employee engagement and affiliation Recruit new talent Effective transfer of unique knowledge

Key Role of H.R during M&As:

Maximizing Productivity Developing the organizational culture Retention of key talent Cultivating the style of the management team Acting as a change agent Communicating the business objectives

Pitfalls that affect M&As:

Incompatible cultures Inability to manage targets Inability to effectively implement change Non existent or overestimated synergies Lack of anticipation of foreseeable events A clash in management styles Excessive premium for acquisition Unhealthy acquisition target Requirement to spin off or liquidate too much Incompatible market systems

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Some facts regarding M&A Failed M&A events are most likely to involve workforce reductions in the target that begin within two months of the purchase, affect more than 10 percent of the targets workforce, and involve automatic elimination of redundant positions. In the companies in this study, when hourly employees were terminated within two months of the acquisition, the failure rate was a substantial 81 percent. When managerial, technical, and professional employees were terminated within two months, the failure rate was 100 percent. Failed events are more likely to involve high levels of unanticipated turnover among executive, managerial, and technical and professional employees. Turnover is more likely when workforce reductions and restructuring are undertaken in the acquired firms within six months of the purchase. Firms involved in failed events are more likely to have undertaken changes to the targets management structure (for example, by centralizing key functions), physical structure (for example, through plant closures), and policies and procedures. According to a report from which he was quoted, five major roadblocks to M&A success were identified : o o o o o

Inability to sustain financial performance (64 percent) Loss of productivity (62 percent) Incompatible cultures (56 percent) Loss of key talent (53 percent) Clash of management styles (53 percent)

Interestingly, while some 65 percent of survey respondents indicated that their ideal role in an M&A was to be a strategic partner with senior management, only 8 percent ranked their ideal M&A role as HR functional expert and implementor, where HR involvement is indeed heaviest. Moreover, only half of the respondents believe their HR organizations possess the capabilities needed to play a strategic M&A role

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Success and failures of organizations in different M&A phases

Success Rate of M&As: Research reveals that the success rate of mergers and acquisitions are dismal

Only 30% of companies acquired their return on the cost of capital Close to 50% of executives leave in the 1st year 70% do not realise their project synergies.

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Synergies achieved VS Synergies targeted chart

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Research:
Research Objective Following were the objectives of my research study: To analyze the roles and responsibilities of the H.R Dept. during Mergers & Acquisitions. To gather financial data of the organization and analyze whether the M&A was successful or not Understand the H.R strategies used by the organization in order to achieve its objectives.

Research Methodology: Primary Data: In order to acquire First hand Information on The affect on M&As on the Organization and the specific role played by the H.R Dept., I conducted a Qualitative Analysis by conducting Interviews of the H.R personnels of Organizations that had recently undergone either a Merger or an Acquisition. The samples were chosen simply out of convenience and an open-ended questionnaire was designed in order to gather as much information as possible. A format of the Questionnaire is attached in the following pages. The Interview was conducted on a total of 12 personnels from the H.R Dept. representing 5 Organizations that had recently undergone a Merger or an Acquisition. The following are the Organizations surveyed by me: Centurion Banks (CBoP) Acquisition of Bank of Punjab and Lord Krishna Bank Hotel Sun-n-Sands Acquisition of Hotel Holiday Inn, Pune HDFC Banks Merger with Centurion Bank Jet Airways Acquisition of Air Sahara Air Deccans merger with Kingfisher Airlines.

Secondary Data: For my research, I collected secondary data by analyzing 4 of the biggest mergers /acquisitions in the recent past namely: P&G Gillette Tata Corus Mittal Arcelor

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Daimler Chrysler

I then analyzed the organizations mentioned above on the same aspects as that of the primary data. All information required was easily available due to the popularity of these transactions. Sources of secondary data are: Company websites Wikipedia mergersandacquisition.com CNN.com

Assumptions Following are the assumptions: All data acquired from secondary sources in accurate The interviewees involved in the process have been honest about the answers, even in cases that portray the organization and the department as inefficient or unsuccessful.

Limitations Following were the limitations during the research: Small sample size due to availability of few companies in Mumbai undergone M&As that are willing to share information, due to which the results cannot be generalized for M&As as a whole. Contradictory information on M&As for particular organizations on the internet. Financial figures available are mostly immediately after merger which makes it difficult to analyze whether or not the organization was able to sustain its financial performance.

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Chapter 2: The M&A Life Cycle:

Following are the phases in the M&A process: Pre Deal Due Diligence Integration Planning Implement Merger Evaluate Merger

Pre Deal The role of H.R during pre-deal phase is:

Spotting problems that may be overlooked by other members of the management team Assessing people, organization and cultural fit Educating executives about possible risks

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Due Diligence Following are the H.R Responsibilities during the process:

Recognizing that there is more to due diligence The bottom line issues such as benefits and employee pay Looking at the impact of learning and development Advising on organization design and development and Recruitment and retention in the integration process

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Integration Process Following are the H.R Responsibilities during the phase:

The employment relationship Determining compensation and benefits strategy Data collection International issues Determining the culture/vision of the new company Contracts of employment Performance management issues Looking at leadership commitment and talent Confirming people's expectations - retention, cost and cultural fit Looking at techniques that work well in both Operations and selecting the most effective ones that will work across the board

Six important principles of making a transaction most successful:

Implementation Following are the H.R Responsibilities during this phase:

Alignment of HR policies and practices Advising senior management on people issues Reward schemes
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Education and Training Recruitment Effective Communication

Effective Communication:

Many M&A's fail due to ineffective internal communication Communicating regularly to staff will boost confidence improve morale and prevent rumors from running wild An effective communication plan, implemented at a very early stage, should make all the difference when it comes to communicating with and reassuring employees

Implementation of Benefit Plans:

Data collection retirement plans Retirement plans special issues Defined benefit plans special issues Defined contribution plans special issues Data collection health and welfare plans Data collection paid time off International issues

Implementation of Compensation Programs and Executive Rewards:

Data collection compensation programs Data collection executive rewards International issues Strategy implementation

Implementation of The Work Experience:

Taking inventory Work experience programs Payroll/HRIS Strategy implementation

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Post-transaction integration Following are the responsibilities of the H.R Department during this phase:

Communication Post-transaction measurements Closing the loop HR professionals to be bolder in asserting what the value drivers are in people terms. There is no such thing as "it's finished changing" which, for HR professionals, means it will be necessary to step out of the traditional HR role and begin thinking like General Managers and CEOs. Be bolder as a profession and take proactive steps to ensure that HR has a distinctive value and contribution to make in establishing your new organizational culture. HR, in order to have real impact, must be able to take the lead in proposing, creating, and integrating best practices with regard to people, culture, rewards and performance. This means building credibility with all the varied constituencies and stakeholders within the organization. It means that HR is the first place that employees and managers look to solve challenges, develop solutions and model being an agent of change. Such an HR function plays a critical role in implementing a successful merger

H.R issues that arise during M&As:

The human resource issues in the mergers and acquisitions (M&A) can be classified in two phases:

The pre-merger phase & The post merger phase.

Literature provides ample evidence of difference in between the human resource activities in the two stages: the pre-acquisition and post acquisition period. Due diligence is important in the first phase while integration issues take the front seat in the later. The pre acquisition period involves an assessment of the cultural and organizational differences, which will include the organizational cultures, role of leaders in the organization, life cycle of the organization, and the management styles. The mergers often prove to be traumatic for the employees of acquired firms; the impact can range from anger to depression. The usual impact is high turnover,
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decrease in the morale, motivation, productivity leading to merger failure. The other issues in the M&A activity are the changes in the HR policies, downsizing, layoffs, survivor syndromes, stress on the workers, information system issues etc. The human resource system issues that become important in M&A activity are human resource planning, compensation selection and turnover, performance appraisal system, employee development and employee relations.

The Pre-Merger Stage

Strategic Planning and Organization The first step is strategic planning in which the acquiring firm develops its mission statement and determines the type of merger or acquisition that will be sought and how it will achieve corporate objectives. In the next stage the firm is primarily concerned with organizationcreating a specific team to manage the M&A activity. In their eight-year study of mergers and acquisitions, Marks and Cutcliffe (1988) found that corporate executives generally failed to integrate human resource aspects into the merger process, perhaps because they were not familiar with the appropriate methods of managing the change in their organizations or because they did not realize that the merger might have a significant negative effect on their employees. Consequently, financial and legal concerns dominated the pre-merger stage, and human resource managers, who could have provided advice on managing the human side of the transaction, were seldom included in the core planning group. Similarly, Bohls (1989) survey of 109 companies with active M&A programs found that the human resource function had not played an important role in the pre-merger planning in about two-thirds of companies reporting post-event problems, while the same was true in only about half of those reporting no problems. With such results in mind Fombrun stresses the need to include human resource managers in the core strategic team. Because people problems are a primary source of poor M&A performance, including HR managers early in the decision-making process is an important part of any M&A strategy. Searching Searching for potential acquisitions and thoroughly investigating the merits of each is the third step of the merger process. Of particular relevance to HR are the results of Schweiger, who found in a survey of 80 firms that the most important factors in evaluating potential acquisitions were the talent and management philosophy of the acquired top managers and the talent of the acquired middle managers. Similarly, McCann and Gilkey (1988) and Walsh (1989) note that most M&As are undertaken partly to capture the valuable asset of a qualified management team. The retention of management thus becomes a key factor in the success of a merger or acquisition.

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Analysis and Offer The fourth stage of the merger process is analysis and offer, in which a primary objective is to evaluate the fit of the two firms. McCann and Gilkey (1988) identity three types of fit financial, business, and organizational fitthat must all be present if the merger or acquisition is to be successful. For the purposes of this study, organizational fit, which includes human resources and the two organizational cultures, is of primary importance, since it helps to determine how well the two firms can be integrated. McCann and Gilkey suggest that the greater the differences between the two firms in these areas, the greater the difficulty in achieving the desired level of integration . . . and in realizing business synergies which will ultimately show up in financial performance M&A activity presents a different set of challenge for the human resource managers in both acquiring and acquired organizations. The M&A activity is found to have serious impact on the performance of the employees during the period of transition. The M&A leads to stress on the employee, which is caused by the differences in human resource practices, uncertainty in the environment, cultural differences, and differences in organizational structure and changes in the managerial styles. The organizational culture plays an important role during mergers and acquisitions as the organizational practices, managerial styles and structures to a large extent are determined by the organizational culture. Each organization has a different set of beliefs and value systems, which may clash owing to the M&A activity. The exposure to a new culture during the M&A leads to a psychological state called culture shock. The employees not only need to abandon their own culture, values and belief but also have to accept an entirely different culture. This exposure challenges the old organizational value system and practices leading to stress among the employees. Research has found that dissimilar cultures can produce feeling of hostility and significant discomfort which can lower the commitment and cooperation on the part of the employees. In case of cultural clash, one of the cultures that is dominant culture may get preference in the organization causing frustration and feelings of loss for the other set of employees. The employees of non-dominating culture may also get feelings of loss of identity associated with the acquired firm. In certain cases like acquisition of a lesser known or less profitable organization by a better one can lead to feelings of superiority complex among the employees of the acquiring organization. In case of hostility in the environment the employees of two organizations may develop us versus them attitude which may be detrimental to the organizational growth. The uncertainty during the M&A activity divert the focus of employees from productive work to issues like job security, changes in designation, career path, working in new departments and fear of working with new teams. The M&A activity leads to duplication of certain departments, hence the excess manpower at times needs to be downsized hence the first set of thoughts that occur in the minds of employees are related to security of their jobs. The M&A activity also causes changes in their well defined career paths and future opportunities in the
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organization. Some employees also have to be relocated or assigned new jobs; hence the employees find themselves in a completely different situation with changes in job profiles and work teams. This may have an impact on the performance of the employees. Research has found that at least two hours of productive work per employee per man day is lost during the M&A activity in the organizations. The increased political processes that may be underway in the organizations to sustain the importance of the various individuals and departments will add to the confusion. The human resource systems vary across organizations owing to the differences in the organizational culture, sectoral differences and national cultural differences. For example if the compensation in the acquired firm is lesser compared to the acquiring firm, the acquisition will raise employee expectations (for the employees of acquired firm) of a possible hike in compensation which may not be realistic. On the other hand if the compensation level of employees in acquiring firm is lower the employees may press to have equal compensation across all the divisions of the firm. The pay differential can act as a de-motivator for the employees of acquiring firm and may have long term consequences. The compensation issues may also involve legal angle.

The Post-Merger Transition

The last two stages in a merger or acquisition are the transition and integration. These two stages are the most complicated and are surrounded by the highest level of uncertainty. The transition stage is in fact the most poorly managed of all, and consequently it is the stage where most failures occur. A Delicate Balance Management of the transition stage requires a delicate balance between providing a stabilizing influence and creating a climate for change. Uncertainty and anxiety, anger, frustration, psychological withdrawal and family disruptions are pervasive during M&A activity. Those who voluntarily leave their company indicate that uncertainty leads them to do so early in the acquisition process. The importance of transition management is further emphasized by Beatty (1990) which shows that negative employee reactions and behaviours are more common in failed acquisitions than in successes. Insecurity and Anxiety Negative employee feelings and behaviour are typical responses to threatening situations,in this case, job insecurity. The magnitude of the response will be determined by the employees perception of the severity of the threat and the degree of powerlessness to counteract it, which will in turn be a function of his or her confusion concerning the expectations of the new firm. For example, if employees are unaware of how they will be evaluated for the retention decision, feelings of powerlessness will be high. Since information is generally scarce in the
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transition stage, the employees perceptions will be influenced predominately by rumour and speculation. Greenhalgh and Jick found a positive correlation between job insecurity and resistance to change Individuals faced with a threatening situation exhibit strong attachment to previously learned behaviours, even if they are inappropriate. Since the transition stage in the merger process is supposed to facilitate change, high levels of uncertainty are clearly counterproductive. Unanticipated Turnover The predominance of negative attitudes caused by uncertainty often leads employees to act on the worst scenario and begin updating rsums. The most valuable employees those that the post-merger corporation can least afford to losetend to be the first to leave the organization. For example, when Fluor Corporation acquired St. Joe Mineral in 1981, in a deal costing $2.2 billion, the large-scale migration of key managers following the acquisition contributed to millions of dollars in losses at the previously profitable St. Joe (Shrivastava 1986). Estimates of unanticipated turnover suggests that 47 percent of top executives in an acquired firm leave within the first year and 75 percent within three years. Within five years 58 percent of all managers leave and it is often the managers with the best performance histories who leave early on .If there is no planned intervention strategy to deal with negative feelings and behaviours, the long-term behaviour of employees who do remain with the organization may be affected, significantly reducing the likelihood of a successful post-merger integration . More than any other issue, how you handle employees in the first three to six months will set the tone for future relations between the two firms HR Interventions Several authors have suggested how to reduce the incidence of counterproductive behaviours Preliminary interventions target emotional support, and may begin while negotiations are still underway. Activities in this phase are focused on providing stability. Other techniques are intended to create a positive environment for change by decreasing the level of uncertainty and fostering realistic expectations for the future. Feelings of powerlessness on the part of employees are reduced by providing information to determine how (or if) the threat to job security can be counteracted. Commitment to the new organization may be fostered if the employees are encouraged to see that career opportunities are available and continued success is possible in the new organization. The Post-Merger Integration Changes that are designed to capture synergies are implemented in the integration stage. This phase is most often poorly.

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Procedural Integration Procedural integration is designed to standardize work procedures and improve productivity. Since each firm has its own systems and procedures, combining the two requires that some of the old ways are abandoned. Marks and Mirvis suggest that where the system of the dominant firm is adopted over that of the subdominant, it may be understood to imply that the former is superior and that its people are wiser and more able. After a series of such losses, the subdominant group will lose its organizational identity, and conflict both within and between the groups will result. For example, after Texas Instruments merged with M&C, it attempted to transfer its sophisticated plan ning and budgeting system to the more informally run M&C. However, this action resulted in a drop in performance and resistance to the change. It took several years for the new system to stabilize, and even when it did, the performance level was far from optimal . The dominant firm often attempts to centralize the control function within the acquired firm, particularly with respect to expenditures . The approach can create problems, however. Hayes and Hoag found that two-thirds of the managers who left behind acquired firms did so because of loss of autonomy and control. Kitching (1967) discovered that in 81 percent of failed M&A events, the organizations reporting relationships and/or the degree of managerial autonomy were disturbed at least once after the acquisition event. Similarly, Bohl found that of companies reporting no post-event problems, 41.8 percent had left the management structure unchanged. Of the companies reporting problems, only 13.0 percent did not alter the management structure. When key functions were centralized in the acquired firm, problems such as higher absenteeism and turnover and lower productivity were nearly twice as likely as when no change was made. Physical Integration Physical integration is intended to use the mutually exclusive assets of the two firms as the basis for capturing synergies. Some common assets will become redundant and workforce reductions may take place. It was found that 75 percent of the organizations they surveyed had terminated employees following a merger or acquisition event. Workforce reductions frequently lead to subsequent problems, however. In one study 70 percent of the companies that had downsized following a merger or acquisition reported one or more post-event problems, compared with 40 percent of the companies that had retained all their workers. After downsizing, considerable uncertainty and frustration may be exhibited among remaining employees, who may feel that the termination decisions were based on unclear or inappropriate criteria. One policy in particularthe automatic elimination of redundant positionscorrelates highly with post-event problems. In one study, two-thirds of the firms that adhered to this policy encountered post-event difficulties Policies that created fewer problems included automatic retention of all employees wishing to stay, one-on-one interviews with employees, and retention of employees meeting specific criteria. Organizations that make a series of cuts tend to keep the employees anxiety focused on personal survival with no sense of where the cuts would come next. The result is a vicious cycle of disintegration in which a first set of cuts leads to declining
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moraleand lower performance, which in turn leads to a second round of cuts and further decline in morale and performance Consequently, numerous authors advocate a single reduction in the workforce, based on a solid understanding of the anatomy of the organization. The manner in which the workforce reductions are undertaken has a significant impact on the organizations success in managing the survivors: how employees are terminated is often interpreted by the survivors as an indication of how they can expect to be treated by the new company. Socio-cultural Integration Socio-cultural integration is the final and most difficult task in a merger or acquisition. Because the organizational culture is part of the employees identity , a failure to address culture issues may lead to a loss of commitment among employees and may result in lost opportunities to retain qualified personnel and motivate individuals. According to Marks and Mirvis, the most important source of conflict in an acquisition is the clash of cultures that occurs when the dominant firm attempts to subvert the formal and informal organization of the acquired firm. There are three main reasons for this conflict: the power differential between the two groups, the unidirectional flow of culture from the dominant group, and the active resistance to a loss of culture in the acquired firm. On the question of how soon changes in the acquired company should be implemented, some commentators favour the quick approach, arguing that it will minimize uncertainty for employees.For example, Buono points out that employees are expecting change following a merger or acquisition and thus are more likely to accept relatively radical changes in the immediate post-event period. On the other hand, it is also suggested that integration should be phased in over time to avoid the shocks associated with changes in ownership. But Marks and Mirvis warn that while dominant firms tend to move quickly to consolidate their gains, this aggressiveness can have such a negative impact on the target firms employees that the acquirer loses any benefit. They also advise against radical change until problems of organizational fit are better understood.

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Chapter 3: Managing M&As

Human Resource departments in major Indian corporate houses adorned the new role -that of the strategic partner in 2007 and the trend will continue this year. Its the people that build organisations and strategies made without keeping them in mind can be fatal for its future. Integration and transition challenges have the capability of making or breaking M& A deals. In implementing an M&A, most managers focus on the financials. But success often hinges on how you deal with people issues and cultural integration. The question which most companies need to ask themselves is -- are we ready to take up the new HR challenges. While in the past organisations' commercial valuation was the only aspect on which M&A deals were based, off late human resource valuations have also cropped up as a major criterion. Even private equity firms are now asking for the human resource capability of an organisation before making a final investment decision.

The role of HR becomes strategic on deciding what kind of people, capability and commitment the company would want post the deal. To efficiently handle this phase many companies undertake feasibility studies based on which it decides what part of the workforce is to be retained. The bottomline is that investors want to have a pre-assurance that employees are productive and stable. Investing in such an organisation is preferred as one is sure that the processes would continue to run smoothly. The new-age challenge has led to companies recruiting people on newer roles specifically to carry out these new set of duties. In the pre-deal stage, HR can help define the cultural aspects like compatibility and unique features, and areas where clashes are likely to happen. Post the identification of partner, assessment on the differences in the management style of the two companies and potential HR financial issues like pension plans etc are identified. Integration planning is the next stage -- effective employee communication here is the key. Questions about job security, relocation, changes in benefit programmes and new reporting relationships are answered. Keeping a check on rumours, anxiety, resentment and the loss of top talent, has also to be dealt with. Newer HR roles are being introduced for people research based on which HR valuation is done. The profile of Culture Officer is a popular one amongst these which many companies have incorporated.

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The M&A phase is very sensitive for employees as they feel insecure about their future in the transitional times. If HR in such a scenario is able to make people retain their faith in the organisation, chances of companies sailing smoothly towards a positive future are increased. So, while the first generation HR focused on ways to deliver existing HR services better, faster and cheaper, the HR in the transformation or current phase is looking outward at helping the businesses succeed amongst growing global competition and scarcity of talent. Underestimating or failing to address basic HR challenges that arise during merger or acquisition leaves companies vulnerable to legal incompliance, exposed to potentially large hidden costs and undeclared expenditures and at huge risk of losing key employees. Companies are realizing that people-related issues such as cultural adaptability and an understanding of local HR policies and practices have a strong impact on the long-term success of many deal.As such, the newer role of HR demands it to widen its focus and include newer elements to its portfolio like creating shareholder value, aligning workforce strategies with business strategy, building capability to contribute to execute strategies, optimize service delivery, minimise people-related risk and provide line commitment. In its transformed face stage HR would become more corporate in nature, as such, recruitment would become talent management and appraisals performance management. However, it would take a lot of innovative practices on the part of the HR to be in a position to extend that effective strategic partnership, feel experts. Also, adorning the new role would make them answerable to their companies more than before. The cost of HR increases in the M&A scenario, there can be increased expenditures on expats, training programmes, new hirings and retrenchment. The movement from the backroom to boardroom will make HR answerable on showing return on investment (ROI) for newer expenditures made. So, while the past HR's role was to employ people, train them and leave them to float in the organisation, the new day HR will have to be answerable for attrition numbers, bad productivity and many such aspects, just like the head of any other department. The major challenges would be -- attracting and retaining the right talent, differentiating high performers, effective career succession planning, ensuring standards for talent, developing a comprehensive reward strategy and increasing effectiveness of annual incentive plans. Respecting individuals, providing them with challenging job profiles, enabling work-life balance, engaging them in decision making process and creating a culture of mutual respect would be the factors to make an organisation the employer of choice and sustain during the high tides of transformation. "Its the culture-fit that did it for us in the Tata-Corus deal," Tata Sons Director J J Irani said when asked what led to the finalisation of the deal between the two companies.

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Clearly defined communication strategy during M&A plays an important role in removing the employee fears and kill rumors floating around in the organization. The organizations need to reach their employees before the press as the employees will have feelings of getting cheated. Studies show that communication strategy that involves senior managers of the acquired organizations work well. Involving other employees who are trusted by the employees for instance trade union leaders are also helpful. The employees meeting in small groups so as to discuss their concerns, fears and positive feelings also helps to lessen the stress on employees of acquired firm. The group meetings seem to help because many-a-times employees are reluctant to come out and speak their concerns, whereas in groups where everyone shares same set of feelings to an extent, it becomes easier to come out with the common set of concerns and fears. This also provides confidence to employees that the new management is willing to listen to their concerns and feelings, building an atmosphere of mutual trust. The transition period also becomes crucial from communication point of view. In case of lengthy transition period the employee stress increases, the best strategy in this period is to convince the employees that they are part of new organization and their concerns will be taken care of. The transition period can also be used to improve communication with the employees of acquired firm. Improved communication will help to better understand each others cultures and practices. Firms can also use this period to analyze the human capital of the acquired firm and define their possible roles in the new organizations. The transition period provides ample opportunity to design the new organization, explain the new roles to the employees, plan synergies and train the employees as the new role. This will make the integration process easier for the acquiring organization. The communication aspect being very important should be handled carefully by the human resource department. The communication should provide precise information to the employees, providing any piece of information which is unreal can lead to rumors and counteract. The communication should be sufficient enough to answer the queries and worries of the employees. The first set of information should be related to their future jobs, this will help to lessen their worries related to job security. The communication shouldnt involve false promises which may counteract later. The communication can be through trusted and credible employees of the acquired company and trade unions can be involved in the process too.

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Chapter 4: Case Studies

Case 1: HLL acquires TOMCO Issue: Dealing with Integration issues due to different employee terms Hindustan Lever Limited acquiring TOMCO, the employees in TOMCO enjoyed better terms and services compared to the HLL employees. The HLL employees argued that if TOMCO employees are allowed to work on their original terms and conditions, two classes of employees will come in existence. Since both the set of employees now belong to same firm, a case of discrimination will arise against the employees of HLL. However the court supported TOMCO employees in the process.

Case 2: Merger of Glaxo and Wellcome-Burroughs Issue: Dealing with Integration issues due to difference in pay structures The two decided to merge in 1996. The Indian arms however couldnt merge in the last seven years because of high pay differential between workers of Glaxo and Wellcome in India. The workers of Wellcome were offered a one time compensation of Rs. 2 lakhs in 1998, which they refused. Further the VRS scheme launched by the firm evoked very tepid response. Since 1997 the firms have been working as independent subsidiaries in India. Compensation differences need to be rectified by the acquiring firm so as to maintain the morale of acquired firm employees and to retain them. The compensation structure among the organizations may also differ creating troubles, for example one of the firms may have performance based pay while other may have higher component of fixed pay. Hence the differences in compensation structure and performance appraisal systems also need to be rectified so as to bring equity in the human resource systems and to treat employees at the equal level. Case 3: Kidz Corner and Kamala Issue: Dealing with Unwanted change in working conditions due to acquistion Kamala who was in her early forties was quite puzzled with what is happening with her career. As she was listening to a lecture on people issues in mergers and acquisitions, she could not just let herself free from the experiences she was having for the past 6 months. Kamala is working as a Principal in a nursery school which takes care of about 100 students. She had four teachers
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working under her and other three office staffs. The events unfolded as follows. Vidhya group was interested in taking over Kids Corner which was the nursery managed by Kamala. Although Kamala was not a partner in Kids Corner, she was given a lot of freedom and authority in running the organization. As a principal she was vested with the responsibility of taking any decision which affected the organization. The partners of Kids Corner were running the organization as a service to the society. The revenues which were collected as fees from the kids were used to fund the salary and other running expenses of the nursery. As the professor explained how some of the major mergers turned out to be acquisitions with the bigger and stronger company trying to take full control, Kamala was worried about her destiny in the organization. Kamala initiated the process of merging Kids Corner with Vidhya group. Vidhya group managed many educational institutions from high schools to engineering colleges. However they didnt have professionally managed preschool in their portfolio. The inclusion of Kids Corner would help then to get a good group of students in the entry level classes of their high school too. Kamala also thought this as an opportunity to grow and increase the visibility of Kids Corner. Kamala represented Kids Corner in all the major negotiations with the Vidhya Group. She was impressed with the way that Vidhya group discussed various issues with her. They also guaranteed her the post of Principal once the group takes over the Kids Corner. The parents of the kids were also involved in the take over negotiations. The Vidhya Group and the parents were of the opinion that since she managed the institute till now, she knows best to do it further. The ownership of Kids Corner was taken over by the Vidhya Group. However things changed a lot since then. Lots of ambiguity crept in regarding the fate of Kids Corner. Kamala was sidelined in some of the major decisions which were taken regarding the running of Kids Corner. Some of the teachers left the organization feeling uncomfortable with the new management and their style of functioning. The way the new management dealt with Kamala also changed a lot. A new person was appointed as the manager of Kids Corner. He took some of the major decisions regarding the running of the organization, which Kamala was unaware of. Kamala thought that there is a major dent in the freedom she had in running the organization. She was further shocked when the new management informed her that the salary that she is drawing now is too high for the organization to afford. They wanted the salary to be cut to almost half. With this Kamala thought that she was cheated by the Vidhya group. She is on leave for almost a week and had discussed this issue with her colleagues and family. She was in a complete dilemma and has now started thinking of the options she had before her. After the session, she had a chat with the professor and narrated the experience she is undergoing. She brought out the options before her Whether to continue with Kids Corner, join another organization which may give a comparable salary and job profile or fight it out with the new management.

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In the case of Kamala, we can see how the confusion after merger affects the professional life. If organizations of large size merge, the differences that may exist in practices, the mystery about the future, feeling of distrust and rumors will be creating havoc in the life of employees. The result as we have seen in the case may be employees leaving the company or drop in productivity due to apathy towards work and the management. It is important to understand a merger will be the case of managing a number of employees like Kamala and this should be a well planned process. Case 4: Acquisition strategy of GE Capital The GE Capital uses a successful model called Pathfinder for acquiring firms. The model disintegrates the process of M&A into four categories which are further divided into subcategories. The four stages incorporate some of the best practices for optimum results. The pre-acquisition phase of the model involves due diligence, negotiations and closing of deals. This involves the cultural assessments, devising communication strategies and evaluation of strengths and weaknesses of the business leaders. An integration manager is also chosen at this stage. The second phase is the foundation building. At this phase the integration plan is prepared. A team of executives from the GE Capital and the acquiring company is formed. Also a 100 day communication strategy is evolved and the senior management involvement and support is made clear. The needed resources are pooled and accountability is ensured. The third is the integration phase. Here the actual implementation and correction measures are taken. The processes like assessing the work flow, assignment of roles etc are done at this stage. This stage also involves continuous feedbacks and making necessary corrections in the implementation. The last phase involves assimilation process where integration efforts are reassessed. This stage involves long term adjustment and looking for avenues for improving the integration. This is also the period when the organization actual starts reaping the benefits of the acquisition. The model is dynamic in the sense that company constantly improves it through internal discussions between the teams that share their experiences, effective tools and refine best practices. Case 5: Acquisition strategy of CISCO The acquisition strategy of Cisco is an excellent example of how thorough planning can help in successful acquisitions. After experiencing some failures in acquiring companies, Cisco devised a three step process of acquisition. This involved, analyzing the benefits of acquiring, understanding how the two organizations will fit together how the employees from the organization can match with Cisco culture and then the integration process. In the evaluation process, Cisco looked whether there is compatibility in terms of long term goals of the organization, work culture, geographical proximity etc. For example Cisco believes in an organizational culture which is risk taking and adventurous. If this is lacking in the working style of the target company, Cisco is not convinced about the acquisition. No forced acquisitions are done and the critical element is in convincing the various stakeholders of the target company about the future benefits. The company insists on no layoffs and job security is guaranteed to all
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the employees of the acquired company. The acquisition team of Cisco evaluates the working style of the management of the target company, the caliber of the employees, the technology systems and the relationship style with the employees. Once the acquisition team is convinced, an integration strategy is rolled out. A top level integration team visits the target company and gives clear cut information regarding Cisco and the future roles of the employees of the acquired firm. After the acquisition, employees of the acquired firm are given 30 days orientation training to fit into the new organizational environment. The planned process of communication and integration has resulted in high rate of success in acquisitions for Cisco. Case 6: Acquisition of Shangri-La hotel in Shanghai by the Ritz Carlton Issue: Turning an average Luxury hotel to one of the finest and best employer in Asia. Introduction: Prior to 1998, The Portman Shangri-La Hotel in Shanghai was a five-star property much like any other in the city. Employee and guest satisfaction ranged between 70 and 80 percent, and finances were unspectacular. But after Mark DeCocinis and The Ritz-Carlton took over management of the hotel in early 1998, employee satisfaction soared, guests were much happier, and finances improved. In just a few years, then General Manager DeCocinis and The RitzCarlton lifted the hotel to a level all its own, using a proven business approach and sound human resource management practices. The Portman Ritz-Carlton currently has more than 700 employees. For five consecutive years, its annual employee satisfaction rate has been the highest among all of the Ritz-Carltons 63 hotels worldwide, reaching 98 percent last year. And while the staff turnover rate for Asias hotel industry is 29 percent, the rate at The Portman RitzCarlton is a modest 15 to 16 percent. Its guest satisfaction rate is between 92 and 95 percent and its annual financial growth at 15 to 18 percent year on year. In recent years, The Portman Ritz-Carlton has won award after award in recognition of its successful formula. For three consecutive times, it was named Best Employer in Asia by Hewitt Associates and Overall Best Business Hotel in Asia by Bloomberg TV. For the fifth time, it has been selected the Best Business Hotel in China by Business Asia magazine.
Business and Talent Requirements for the Portman Ritz-Carltons Success:

As a premium hotel whose utmost mission is to provide genuine care and comfort to our guests, The Portman Ritz-Carlton pledges to provide the finest personal service and facilities to our guests who will always enjoy a warm, relaxed yet refined ambience. And this objective can only be fulfilled by satisfied and engaged employees. To ensure the highest service standards, Mark DeCocinis and his management team look for people who will fit the existing culture:

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1) People who share the same values and purpose. Our selection focuses on talent and personal values because these are things that cant be taught. Our culture is special, and we cant expect to bring someone into this culture if they dont have the same values and purpose. 2) People who care for and respect others. We focus on a persons theme. What do they enjoy? Whats their purpose in life? What motivates them? We look for people who genuinely enjoy contact with people and helping others. Its not about being introverted or extroverted, its about caring for and respecting others. You can work at the front desk or behind the scenes, but you must enjoy contact with others, whether they are guests or other employees. 3) People who smile naturally. If the person smiles naturally, thats very important to us because this is something you cant force. And if youre happy on the inside, youre happy on the outside. That makes others feel good. 4) People who seek a long term relationship. We look at employment as a long-term relationship and we try to select candidates who also seek a long-term relationship. 5) People who have talent for the job: We select employees with the best talent that fits the culture and philosophy of The Ritz-Carlton and is systematically measured through Behavioral Event Interviews. The Portman Ritz-Carltons ultimate focus on a candidates motivation to connect with and help other people lays the foundation for both individual and company success. The Portman Ritz-Carlton from the Eyes of Employees: What do employees feel about their experience at The Portman Ritz-Carlton? The numbers speak for themselves: 1) Employee satisfaction rate: From 2000 to 2005, the employee satisfaction rate of The Portman Ritz-Carlton has risen from 95 to 98 percent, making it the highest among 60 Ritz-Carlton hotels worldwide for five consecutive years. 2) Employee turnover rate: Besides a turnover rate that is half of the industry average in Asia, over 60 percent of its current employees have been with the hotel for more than five years and over 30 percent have been with the hotel for over eight years. 3) Best Employer in China Award: Of all the 21 measures Hewitt Associates uses for the selection, which ranges from engagement, pay and benefits to career opportunity and recognition, The Portman Ritz-Carltons scores were consistently around 95 percent while other Best Employers in China were around 80 percent and the remainder of participating companies in China were around 50 percent. Selecting right employees critical: Mark DeCocinis believes the key to peoples success starts with selecting the right candidates. Hiring is a group decision at the hotel and the General
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Manager is involved in the interview process of all employees to show how important that individual is to the company. First, Human Resources would administer a standard behavior interview around key themes linked to the companys values, followed by an interview with line managers who assess the candidates on their skills. After that, the Division Head, the HR Director and General Manager will interview the candidate. In 99 percent of the cases, Mark DeCocinis agrees with the selection decision. Training and daily lineup: The Portman Ritz-Carlton provides training to employees to foster an understanding of company culture and improve their professional skills. Before new employees have any contact with guests, they will receive a two-day orientation on company culture and philosophy during which the General Manager, the executive team and Human Resources explain The Ritz-Carlton Credo, Employee Promise, and 12 Service Values. After that, they will receive 30 days of training from a certified trainer from the department. On Day 21, new employees are asked to give the management feedback on how they can improve their training program for future training and recertification. In addition, every employee gets a minimum of 130 hours of training every year which spans training for their department, company culture, language and computer skills. Day 365 is a recognition of one year of loyal service and is an opportunity to reinforce the hotels culture. Every employee will also go through annual recertification after they pass written tests, role play and interviews on culture and skill. Daily lineup is a daily briefing to reiterate the companys standard and convey important business messages. It takes place every morning in each department. While each department may conduct briefings differently, the message they convey is the same worldwide: they will talk about one of the 12 Service Values Listening and communication: Mark DeCocinis believes communication is important and creates abundant opportunities to interact with employees beginning with the interview and continuing through monthly breakfast meetings and his daily rounds of the hotel Empowerment and continuous improvement: Service Value 3 states that employees are empowered: I am empowered to create unique, memorable and personal experiences for our guests. The employees at The Portman Ritz-Carlton, like employees at any Ritz-Carlton hotel, are also allowed to spend up to US$2,000 to resolve customer complaints. And as long as there is a valid reason, there is no limit on number of times employees use that empowerment. Information support: Through their numerous interaction with guests throughout their stay (like check in, room service, and housekeeping) employees continuously record guest preferences and needs in Guest Preference Forms. Every night, such preferences and needs are entered into The Ritz-Carltons worldwide database (Project Mystique) so whenever guests make a reservation at a Ritz-Carlton hotel, their needs and preferences are known and taken care of.
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Reward and recognition: At The Portman Ritz-Carlton, employees are recognized and rewarded both financially and non-financially. Mark DeCocinis believes if you want your people to be the best, you must pay them top market salaries. While money is not the key motivator, employees are rewarded for improving the goals measured by guest satisfaction, financial performance and employee satisfaction at year end. Employees are rewarded and recognized for their outstanding customer service. Every quarter, a Five-Star Employee Award is granted, with the winner receiving a five-night stay for two at a Ritz-Carlton anywhere in the world, along with round-trip tickets for two and US$500 allowance. Managers at the hotel know that their job is to motivate and recognize people. Employees are recognized at staff meetings and through the HR communication bulletin board. Employees also send first class compliment cards to each other to recognize service excellence of their colleagues.

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Note: The Case mentioned above in my view, is one of best document cases portraying the Role and impact of the H.R Dept. during the process of Mergers & Acquisitions.

Interpretation, analysis and deductions of Case study: Problem Statement: The first problem statement in the case of The Portman Ritz-Carlton, Shanghai Hotel would be To analyze how a change in the working environment of a company can affect its employees, customers and profits of the Organization. Secondly, Prove the hypothesis that employees, when given more responsibility perform better Recommendations: Firstly, I believe that the Hotel should not decrease the room tariffs. The slump in the market caused due to 9/11 was only temporary and tourism would be back on its feet in a matter of months. Also, in doing so- they would come in direct competition with hotels like Hilton and Sheraton; whereas now, they were a league above them. Also, I believe Mr. DeCocinis should have a board meeting with its top management and discuss ways by which they can retain employees without increasing salaries. An option that the board has is to make its employees sign contracts promising their sincerity to the organization. This may not be the best alternative but it is an option. Also, the management should make an attempt on getting inside information of the other two hotels that are opening shortly. Information like salaries being offered, targets, visions etc. which could help the organization in managing its employees. Also, even with the two new competitor hotels as well as the slump in tourism, there was no doubt that all three could easily co-exist as there would be no shortage in clientele. Shanghai was here to stay. Thus, Mr. DeCocinis should just sit back, continue the way they are and trust their employees in making the right decision. He should continuously provide them with pride and self-respect that comes with working for a Ritz-Carlton and hope that it would be worth much more than a marginal increase in their salary if they move to another hotel.

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Chapter 5: The Role of H.R.M in Cross-Border M&As

Introduction
Mergers and acquisitions (M&As) have become the dominant mode of growth for firms seeking competitive advantage in an increasingly complex and global business economy. Nevertheless, M&As are beset by numerous problems with 50 per cent of domestic acquisitions and 70 per cent of cross-border acquisitions failing to produce intended results. Scholars have examined these problems in terms of strategic market entry choice, market valuations value creation and firm performance finding that difficulties in M&As trace to a lack of a compelling strategic rationale, unrealistic expectations of possible synergies and paying too much for acquired firms. However, although financial and strategic studies have significantly increased our knowledge of M&As, this research is incomplete, in large measure due to a failure to account for personnel issues. Frequent calls within the human resource management field and international business, to study the human side of international M&As, have generated studies exploring the role of HRM in M&As, such as studies of personnel issues surrounding M&As that focus on top management turnover following an acquisition However, most of the existing research within the HRM field relies on an ecdotal evidence of personnel issues in M&As, resulting in little systematic theory that focuses on domestic M&As. In part, this lack of attention with regard to HRM in M&As stems from the marginal role that CEOs have designated to the HRM function in M&As, particularly in the early stages of the M&A process. Perhaps reflecting the sometimes low relative standing of the personnel function within the firm, the M&A literature has focused primarily on financial due diligence and strategic issues in the merger process, with HRM being an afterthought that becomes relevant only in the integration stage of an M&A when the merger is implemented. The failure to account for personnel issues is somewhat surprising since HRM has the potential to play an important role in M&A integration, for example, by managing personnel conflict, reinforcing the new HRM system and corporate culture and providing leadership and communication to reduce turnover. Yet, the literature does not tackle from a theoretical point of view how HRM systems and practices create value by helping to realize potential post-merger synergies. We argue that the strategic literature provides a useful starting point, since the role of HRM in an M&A will be conditional upon the strategic rationale chosen by the merging firms. In particular, HRM strategies in the integration stage of an M&A should be tightly aligned to the undertaken M&A strategy in a manner that enhances the likelihood of successful M&A outcomes. For example, staffing decisions will differ depending on whether the M&A strategy requires the elimination of redundancies or, conversely,
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the preservation of human capital and knowledge. We examine the fit between M&A strategy and HRstrategy by looking at the effects of organizational resources, processes and values in the M&A integration stage. An additional difficulty for HRM in merger integration is that realizing synergies is often much easier in domestic M&As than in cross-border M&As. In particular, given difficulties inmanaging fit among various HRM practices in individual firms integrating HRM systems from different national and organizational contexts is likely to create a myriad of uncertainties. In principle, we would agree that the uniqueness of national environments makes the role of HRM in cross-border M&As differ significantly from M&As occurring within countries. Without claiming a convergence argument, we acknowledge that differences between firms in the international arena are largely a matter of degree, as pointed out by Sparrow et al. That is, even though evidence indicates that many HRM practices in cross-border M&As tend to converge on a single best model making the role of HRM more predictable it also demonstrates that other practices implemented in the integration stage retain the country-specific characteristics of one of the merging firms. As Child and colleagues note, the issue of integration involves considering not just how much? but also on the basis of which practice? In effect, M&A integration is especially difficult in cross-border M&As due to the embeddedness of firms undergoing acquisitions in their respective national contexts. Thus, in order to understand the role that HRM plays in contributing to the success of cross-border M&As, it is important to consider not only the fit between M&A strategy and HRM strategy, but also the contingencies at the national level in the merger process. By so doing, we can obtain an assessment of the fit between environmental conditions and the structure and strategies that firms put in place Strategies for Cross-Border M&As: Five distinct M&A strategies are discussed: (1) the overcapacity M&A; (2) the geographic roll-up M&A; (3) the product or market extension M&A; An overcapacity M&A occurs when an acquiring company seeks to eliminate excess capacity to create a more efficient corporation. In effect, the acquiring companys strategic goal is to achieve economies of scale in order to gain market share, doing so in part by eliminating human resources. This type of M&A often arises in oligopolistic industries characterized by excess capacity and involves firms of similar size. For example, there have been a number of overcapacity M&As in the petroleum sector (e.g. British Petroleums acquisition of Amoco) and the automobile sector (e.g. Daimlers acquisition of Chrysler). An important concern in this type of M&A is that, although processes and values of the merging entities are frequently similar,

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relative status differences stemming from a merger of near equals can create problems in M&A integration. A geographic roll-up M&A takes place when companies seek to expand geographically, often with operating units remaining at the local level. In many instances, large companies acquire smaller companies that they try to keep intact and therefore these firms tend to retain local managers. These types of M&As are common in the banking sector, as exemplified by Banc Ones acquisitions of several regional banks. Although these M&As are similar to overcapacity M&As in that both involve consolidation of businesses, they differ significantly in that geographic roll-up M&As are more likely to occur at an earlier point in an industrys life-cycle. Strategically, roll-ups are designed to achieve economies of scale and scope and are associated with the building of industry giants (Bower, 2001: 98), while overcapacity M&As seek to reduce capacity and duplication. Although in geographic roll-up M&As human resources are less disposable, the processes and values of the merging entities are likely to differ more than in the overcapacity M&A. Nevertheless, since the size of the acquirer tends to be greater than that of the acquired firm, conflict stemming from status differences is possibly not as prevalent as in the overcapacity M&A. A product or market extension M&A involves expanding product lines or expanding geographically across borders. This type of M&A occurs when the acquiring and acquired companies are functionally related in production and/or distribution but sell products that do not compete directly with one another, or when a company seeks to diversify geographically, such as when two companies manufacture the same product, yet sell it in different markets . In effect, in this type of M&A, firms seek to achieve long-term strategic goals by investing in less saturated markets often doing so to obtain economies of scale necessary for global competition. The likelihood of success of product or market extension M&As depends on the relative size of the merging firms and the experience of the acquired firm in M&As. For example, large firms such as GE acquire many relatively small firms, thereby increasing their chances of subsequent successful mergers. An industry convergence M&A involves creating a new industry from existing industries whose boundaries are eroding. An example of this type of M&A is the Viacom acquisition of Paramount and Blockbuster. Although this type of merger will probably increase in the future, it is rare and not yet fully understood, making it difficult to analyse

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Chapter 6: Organization Profiles

Centurion Bank and Bank of Punjab

Bank of Punjab was merged into Centurion Bank. New entity was named 'Centurion Bank of Punjab'. Total Number of workforce after the merger was almost 4000 employees Swap ratio has been fixed at 4: 9, that is, for every four shares of Rs 10 of Bank of Punjab, its shareholders would receive nine shares of Rs 1 of Centurion Bank. There has been no cash transaction in the course of the merger; it had been settled through the swap of shares. There was no downsizing via the voluntary retirement scheme. India's Centurion Bank of Punjab Ltd. (CBP) acquired privately held Lord Krishna Bank (LKB) in an all stock deal. A leading economic newspaper had valued the deal at about Rs. 300 crore ($ 64.5 million).

Kingfisher Airlines and Deccan Aviation:

Kingfisher Airlines picked up 26% stake in Deccan Aviation at a cost of 550 Crores. This came at a time when Air Deccan was suffering losses of over 200 crores. The group hoped to achieve synergy and cut costs. There were over 5000 employees in the new entitiy. Job Cuts were announced.

Jet Airways and Air Sahara:

Jet Airways acquired Air Sahara for 1450 Crores in the year 2007 after almost an year of negotiations and court settlements. At the time of the Acquisition, Jet Airways had 8000 employees and Air Sahara had 2000 employees. Jet Airways expressed concerns, saying he was unimpressed by the quality of employees at Air Sahara and downsizing will be done, however, suitable candidates should not worry. Dissapointing financial performance post merger
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Centurion Bank of Punjab and HDFC Bank

The merger took place only 3 weeks ago. The swap ration for CBop and HDFC merger has been decided as 1:29. So CBoP share holders will get 1 share of HDFC for 29 shares of CBoP. This has been decided by the management but the actual allotment date has not been finalized. At the time of the Merger, CBoP had almost 7500 employees and HDFC had over 23000 employees. Although, the management declared that downsizing would be minimal, experts suggest otherwise.

Sun-n-Sand and Holiday Inn, Pune

The acquisition took place in late 2004. The property had to be auctioned after the former owners could not pay the loans taken from Indus Ind Bank. The property was sold for 29.8 Crores. The new management made minimal changes after taking over and thus,no employees were layed-off.

Tata Steel and Corus

The board of directors of Anglo-Dutch steelmaker Corus accepted a $7.6 billion takeover bid from Tata Steel The deal was the largest Indian takeover of a foreign company and will create the world's fifth-largest steel group. In 2005, Tata Steel was only the world's 56th biggest steel producer and its takeover of Corus represents its first expansion outside Asia.

Mittal Steel and Arcelor

Mittal was headquartered in Luxembourg, though Lakshmi Mittal works out of offices in Berkeley Square in London. In its current form, it was expected to have a planned capacity of 120 million tonnes. Its annual revenues are expected to be around $108 billion, earnings of $20 billion and market capitalization of about $96 billion and will have 320,000 employees.

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Arcelor shareholders received 13 Mittal Steel shares and 155.60 euros in cash for 12 Arcelor shares. Mittal Steel also offered 13 Mittal Steel shares and 188.42 euros in cash for 12 Arcelor convertible bonds. Current Arcelor shareholders own 50.5 per cent of the combined group and the Mittal family 43.6 per cent of the capital and voting rights. The company's profit went up by 40% after the merger

P&G and Gillette

The Cincinnati-based P&G announced its investment deal to acquire Boston-based Gillette for $57 billion in 2004 and became the world's largest consumer products company with annual sales of $60.7 billion. The new company would overtake Unilever, which had sales of $48.25 billion in 2003. After its purchase of Gillette, P&G would have 21 billion-dollar brands with a market capitalization of $200 billion The merger resulted in around 6,000 job cuts equivalent to 4% of the two companies' combined workforce of 140,000. Most of these reductions would come from eliminating management overlaps and consolidation of business support functions.

Companies at a glance: P&G-03/04 Sales Earnings Dividends R&D Expenditures Leading Brands $51.4 billion $6.5 billion $2.46 $1.8 billion Tide, Always, Iams, Pantene, Charmin, Bounty, Actonel, Crest, Ariel, Downy, Pampers, Pringles, Folgers, Wella, Olay, Head & Shoulders 16 110,000 Gillette 04 $10.3 billion est. $2.3 billion est. $0.65 (03) $202 million Mach3, Gillette, Oral B, Duracell, Braun

Brands w/Sales > $1 billion Number of Employees

5 30,000

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Manufacturing R&D Centers

106 in 41 countries 20 in nine countries

31 plants in 14 countries 3-Germany, United Kingdom, United States

Chapter 7: Findings and Recommendations

Following were the observations of the Study:

Particulars/Co. JetSahara

Kingfisher- Centurion HDFCDeccan bank-BoP CBoP

Size of Organization* Degree of H.R or I.R issues Emphasis on H.R Creativeness of H.R strategies Financial Performance post acquisition Changes made post acquisition Witnessed protests over M/A Change in Co./ brand reputation Reasons for Acquisition Employee lay-off Amount of Responsibility of H.R Stage of

Large High Low Low

Medium Low Low High

Medium High Low Low High

Large n.a Medium Low n.a

Sun-nSand Holiday inn Small Low High High High

Average Average

Low No No change Market Share High Low

High No Confusion amongst Customers Cost Cutting Average Medium

Average Yes Increased Br. Rep Synergies High Low

Low No

High No

Increased No Br. Rep change Market share High Medium Financial No Layoff Low

During

Post

Post
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Post

Post

Involement

Merger

Merger

Merger

Merger

Merger

*Size of the Organization: Small: Below 1000 employees Medium: Below 10,000 employees Large : Above 10,000 employees

Strikes Witnessed

yes No strikes

H.R or I.R Issues: It was found that Sun-n-sand and Kingfisher Airlines had minimal issues to deal with while in the case of Jet Airways as well as CBoP acquisition, there were high number of issues Also, Strike witnessed in Merger of Centurion Bank and BoP and LKB. This is where, the emphasis on H.R during M&A was minimal. Also, there were no creative strategies used as such to better the mindset of the employees as most of the information was confined only to the top level staff. Financial Performance Post Merger:

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Fin.Perf Post Merger

Average High

The Financial Performance of the Organization, was directly dependent upon the reputation of the new entity in the eyes of the customer. In the case of Jet-Sahara deal, Sahara was renamed as Jet Lite, which did gave the illusion of a Low Cost airline to its customers which did not help the Organization increase profits. Similarly, there was confusion within the minds of the consumer regarding the new status of Air Deccan. The fares were increased, new facilities were offered, However food was still not complimentary. Thus, the customers were confused initially as to whether the airline is a low cost airline or not. This affected the profits during the period. In cases where, the new merged entity gained more respect in minds of the consumer, their profits flourished. We can see the results after the Merger of Centurion bank and BoP. Also, Sun-n-Sand, created neither a good, nor a bad impression in the minds of the consumer. However, due to the innovativeness of the new management, it could better its financial position. Lay-off: Small Co.: No Lay-off Medium Co.: Few lay-offs Large Co.: High no. of lay-offs As we can see from the given graph, larger the organization, more were the employees laid-off, not only in absolute terms but also in percentage terms. While the percentage of employee lay-off in small organizations was negligible, the lay-off in large organizations was close almost 5% of the total employees.

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5 4

3
2 1 0 Layoff

Small Med Large

Reasons for Mergers & Acquisition:

Reasons for M/A

Financial Cost Cutting Synergies Capt.Market Share

Capturing Market share was the main reason for the Merger/Acquisition according to the research. Financial reasons, cost cutting and synergies were also important reasons. Phase of Involvement: Through out the questionnaire, It was found that even though people always talk about the importance of H.R during the pre merger phase, almost no company interviewed by
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me actually involved its H.R dept during the pre merger phase. It was only after the deal was finalized did the management start thinking about cultural issues. Inability to sustain financial performance: It was observed that while most organizations, managed to increase their profitability and financial performance, they were unable to sustain the level of performance for more than one year. CBoP increased revenues by 44% in the first year and then 14% in the next year. Kingfisher Airlines designed a complete makeover of the Air Deccan airline, and although it was able to achieve its short term objective, it could not sustain the profits as in running in losses again in the year 2008. This can be correlated with the dedication of the H.R Dept. Most companies think the work is done when the entity is formed and a new culture has been defined and introduced. However, reviewing the merger or acquisition performance from time to time is not done.

Managing M&As without H.R Interference: There are instances where the merger or an acquisition has been successful without the involvement of the H.R Dept. However, this is so only in smaller organization where there is not much change in culture and the new management plans to keep policies and continue as the old organization was working. Secondary research: Now, after Conducting the primary Research and arriving at suitable conclusions, I wanted to compare my Findings and match them with the observations from the secondary research. For the Secondary research, I analyzed the following M&As: Daimlers acquisition of Crysler P&Gs merger with Gillette Tatas acquisition of Corus Mittal Steels merger with Arcelor

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Strikes Witnessed

Strikes

Yes No

2 out of 4 companies namely Mittal-Arcelor and Daimler-Crysler witnessed protests in the form of strikes. This differs from the 20% strikes for the companies in the primary research. Financial Performance: Except for Mittal-Arcelor, neither of the 3 companies have been able to achieve the financial targets set by them. Tata-Corus and P&G-Gillette have performed lower than what was targeted. However, Daimler-Chrysler has been a completely failed Acquisition and Daimler has now sold Chrysler.

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Financial Performance

High Average Low

Phase of H.R Involvement: In the companies analyzed during secondary research, most of them involved their H.R Dept. during the Merger details since all of them Multi-Million dollar deals and 3 out of the 4 were cross-border M&As which meant that managing the cultural fit was even more challenging.

Inability to sustain profits: Daimler-Chrysler did manage to cut costs which resulted in fairly average profits for the first year but were unable to sustain and suffered losses after the first year. The TataCorus and Mittal-Areclor M&As are quite recent and only time will tell whether they are able to sustain their profitability.

Particullars/Research Strikes witnessed Post M/A Financial Perf. Entry phase of H.R Sustainability of Profits

Primary Research 1 out of 5 Co.s (20%) 50% Co. perf. Average & 50% Co. perf. High Mostly Post Merger Mostly unable to sustain good performance
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Secondary Research 2 out of 4 Co.s (50%) 25% perf. Low 25% perf average & 50% perf high Mostly Pre Merger Equal proportion of sustainability &

Reasons for M&A Employee Lay-off

Mostly Financial/capturing market share Few employees layed off

unsustainability Mostly international expansion Mass lay-offs

Recommendations
Following are the recommendations made by me based on the data collected and analyzed:

Train managers on the nature of change It is very important that every manager involved in the M&A process understands the seriousness of the deal and the consequences of failure. Thus, I recommend that all managers involved in the process be trained in areas such as negotiation skills, policy making etc.

Technical retraining. This refers to the training required post merger/acquisition in order to get employees to the same level not just by training the employees new to the organization but also retraining the existing employees. Training serves as a platform for old and new employees to mingle and sets the standards so there is no confusion.

Family assistance programs A Merger/Acquisition is a confusing time, not only for the employee but his/her dependants as well. The employee can be told about the situation and that he has nothing to worry. However, the message also needs to be conveyed to the family. If the management makes an attempt to covey to the family that there is o reason for unrest, the family would believe the management.

Stress reduction program Stress usually accompanies anything that is worth worrying about; and certainly mergers and acquisitions are no different. However, sometimes excessive stress can cause the
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managers to lose the goal of the M&A, make rash decisions etc. which can cause the organization dearly. Thus, it is very important that the management keeps its cool throughout the M&A process. This can be done through Stress reduction programmes.

Meeting between the counter parts In order to facilitate the right cultural fit, reduce hostility in an attempt to create synergy, it is imperative that the counter parts of the two organizations meet constantly, even before the merger is finalized in order to develop the relations. Also, it gives the management of both organizations an understanding of the culture of the other organization and helps them accordingly in defining the right culture and finding the fit.

Orientation programs Post merger, it is very important to conduct an orientation programmes for all the employees and inform them of the new organization, its vision/mission, its policies and its new expectations from the employees. The purpose is to make things as transparent as possible and remove any confusion that may arise during the M&A process.

Explaining new roles Post merger, it is the responsibility of the H.R dept. to explain new roles of the employees to the employees. Without doing so, the employees will assume that they have to carry on the way they did pre-merger. This includes analyzing the job description for each job, making necessary changes and conveying the changes to the employees.

Helping people who lost jobs In cases where two large organizations come together to form one large organization, layoffs are almost certain. However, having said that, the management can find jobs for certain candidates, and them offer a scheme where employees can choose to shift from the organization by offering them a transfer bonus, which would be a more suitable option than VRS.

Post merger team building It is very common, for employees to have the us VS them attitude, post merger. It is thus the role of the H.R dept. to rearrange groups, forcibly if necessary in order to promote team building and achieve synergy in the organization.

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Anonymous feedback helpline for employees During the process of M&A, as well as after employees have several questions that are bothering them. However not all of them can be addressed directly to the H.R dept. due to the fear of most employees of what the management may say. In this case, I would recommend assigning a feedback helpline for the employees where they can call in anonymously, clarify their doubts, give their recommendations as and when they like and the management would address each feedback or query.

Conclusion:
The study on the role of the H.R. Department during Mergers and Acquisition has helped me to better understand the process of Mergers and Acquisition, analyze its complexities and understand how each organization deals with it, in ways that it determines is best for the organization. The secondary information gathered from books and websites helped me to understand how an organization must act before, during and after the M&A activity. The primary research helped me understand how the organizations actually act before, during and after the M&A. I then compared the validity of my observations with the results from the secondary research. Although several results varied due to sheer magnitude of M&As in the secondary research organizations, the essence and basic trends remained the same. To conclude I would like to add, that the role of H.R during Mergers & Acquisitions is not only eminent in theory, but very much in practice too; and the study along with the research confirms that a merger/acquisition that overlooks the H.R aspect is bound to fail over time.

Annexure

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QUESTIONNAIRE ORGANIZATION: ACQUIRED: SECTOR: NO. OF EMPLOYEES: Q. REASONS FOR ACUISITION RATHER THAN BUILDING ONES OWN : Q. WERE ANY EMPLOYEES LAYED-OFF? Q.WHAT WERE THE AREAS OF FOCUS POST ACQUISITION: Q.CHANGES MADE IN THE PROPERTY SINCE ACQUISITION (H.R. RELATED) Q.WHAT WAS THE ROLE OF H.R DEPT. DURINGTHE ACQUISITION: Q.HOW DID YOU ACCOMPLISH IT: Q.WOULD YOU CALL IT A SUCCESSFUL ACQUISITION: Q.WHAT HAVE BEEN SOME CHANGES IN THE HOTELS PERFORMANCE (FINANCIAL AND NON-FINANCIAL) POST ACQUISITION? Q.ARE THERE ANY QUANTIFIABLE ACHIEVEMENTS OF THE H.R DEPT DURINGOR POST ACQUISITION? Q.PLEASE MENTION THE ATTRITION FIGURES BEFORE AND AFTER THE MERGER/ACQUISTION

Bibliography

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Birkinshaw, J. and Bresman, H. (2000) Managing the Post-Acquisition Integration Process: Journal of Management Studies, 37: 395425. Bower, J.L. (2001) Not all M&As Are Alike and that Matters, Harvard Business Review, Reprint. R0103F. Buono, A.F. and Bowditch, J.L. (1989) The Human Side of Mergers and Acquisitions.San Francisco, CA: Jossey-Bass. Cartwright, S. and Cooper, C. (1993) The Role of Cultural Compatibility in Successful Organizational Marriage, Academy of Management Executive, 7: 5770. Child, J., Faulkner, D. and Pitkethly, R. (2001) The Management of International Acquisitions. New York: Oxford University Press. Child, J., Chung, L. and Davies, H. (2003) The Performance of Cross-Border Units in China, Journal of International Business Studies, 34: 24254. Haspeslagh, P. and Jemison, D. (1991) Managing Acquisitions: Creating Value through Corporate Renewal. New York: The Free Press. Hunt, J. and Downing, S. (1990) Mergers, Acquisitions and Human Resource Management, International Journal of Human Resource Management, 1: 195209. Mirvis, P. and Marks, M. (1992) Managing the Merger: Making it Work. Englewood Cliffs, NJ: Prentice Hall. Schuler, R. (2001) Human Resource Issues and Activities in International Joint Ventures, International Journal of Human Resource Management, 12: 152. Vlasic, B. and Stertz, B. (2000) How DaimlerBenz Drove off with Chrysler. New York: Morrow.

Authors Profile: Garv Arora (30) Batch 2006-2008

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MBA-Services Management Narsee Monjee Institute of Management Studies (NMIMS), Mumbai Email: garvarora@hotmail.com

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