Talent and Culture in M&A

Transcription

1 Talent and Culture in M&A Speakers Chris Fitch, IBM, Global Acquisition Integration and Strategic Outsourcing Mary Chico, GE, HR Integration Leader for M&A at GE Energy Liz Huldin, Boeing, Director of M&A Integration Jim McKay, Towers Watson, Director

2 Senior executives who focus solely on merger and acquisition issues for three of the world s largest and most successful serial acquirers Boeing, IBM and GE Energy joined Towers Watson s Jim McKay to discuss best practices for mergers and acquisitions. Their discussion centered on talent and culture issues in M&As specifically what their companies do to tackle these complex issues from the earliest stages of a deal onward. Jim: Our topic today is talent and culture issues in mergers and acquisitions specifi cally, what three leading companies are doing to tackle these complex issues from the earliest stages of a deal through integration and beyond. Each participating company has done multiple acquisitions, and each has a dedicated M&A HR team. To start our discussion, please describe your role as it relates to M&A and how your company s HR function is set up to support M&A. Liz: I lead a global M&A practice for human resources, supporting our corporate development team as well as our business units. Our group is tasked with making sure that we re evaluating the transactions so we can help design the right business model, HR strategies and plans for the combination, as well as help the integration teams prepare for integrating the businesses. Our work is basically centered on helping the organization capture the value of the deal. Chris: My role is very similar to Liz s. I have a global focus across the three business units of IBM: Software, Services and Technology, working closely with corporate development, HR and the business. We work on all deal stages, from due diligence through signing and closing, and then for a subsequent 24-month period to help integrate these deals. My team focuses on identifying the risks, putting work plans together along with budgets to execute those plans, and leading teams to mitigate organizational risk around the integration for that subsequent 24-month period. Mary: I am the Global HR Integration Leader within GE Energy. I support HR integration aspects of all acquisitions, dispositions and joint ventures across GE Energy s suite of businesses. I m also an extended member of the Business Development team and, as part of that team, I m the HR Representative on GE s internal Acquisition/Integration Council. My role is also very similar to Liz and Chris s. I work closely with the business within General Electric that is making an acquisition. I act as a consultant and help both the acquired business and the business doing the acquisition navigate through all aspects of HR integration. I typically stay with the acquired company and the P&L that did the acquiring for about 18 to 24 months. My role spans all aspects of HR, from traditional elements, through talent and culture assessment, all the way through to organizational optimization. Jim: Considering both talent and culture together, please describe your strategy and processes for addressing these issues. Mary: We start very early, when a deal is in the due diligence pipeline. Our key HR representatives get together with members of our business development team, specifi cally those working with the target and talking to the target s key leaders. We do a preliminary talent assessment for the top executives of the target. For culture, we fi rst want to understand how the target operates and defi ne at a very high level what we think their culture is. While this starts early in due diligence, most of the work we do in these areas occurs after we sign the deal. At that point, we have more access and can bring in some of our senior HR managers to assess the talent within the business in more depth, although we re still typically limited to looking at the top one or two management layers of the target. From a culture perspective, we re still looking for a sense of how the target s business operates, some of its norms, to expand the knowledge we gained earlier in the process. Talent and Culture in M&A 2

3 After we close the deal, we move into integration mode, full swing. As a fi rm, we re putting much more emphasis on talent and culture work, and that includes the dollars we spend on this work and the tools we use in the assessments. Chris: We re similar in that we get involved at the pre-due diligence phase, researching the target and its leadership. This helps us hit the ground running in due diligence. Through a series of interviews, we assess the target s top talent, including the C-suite the 10 to 15 leaders who would be instrumental in delivering the business results for that acquisition. For culture, we try to be very tangible in our focus and assessments, specifi cally reviewing the target s decision-making processes, any operating model gaps and how it goes to market in its sector. This assessment yields a document covering the risks, mitigating actions and a budget for those actions, which goes to a deal committee that decides whether to proceed with the deal or not. Our work is obviously folded in with a host of other functional inputs. Assuming the deal proceeds and closes, we ramp up our focus on talent and culture. Our goal is to ensure that we retain the talent required to deliver on the deal-specifi c accountabilities for a requisite period of time, as well as engage and integrate these individuals into IBM in a way that helps them feel comfortable and motivated about the whole acquisition process. Around the culture piece, the ongoing work involves cultural assessments and surveys. But we focus on very tangible issues, such as operating models, change management, leadership alignment sessions, surveys, roundtables, interviews, etc., throughout the subsequent 24-month period. Liz: We follow a similar approach in that the inputs and plans around talent and culture evolve and get increasingly specifi c as we move from strategy into integration. We start with the basic deal facts: rationale for the deal, its size and the type of team involved. In some cases, we want to incorporate the target into existing business, so we re assessing it against what we do today. In other cases, we re comparing the way we approach a business and the way the target approaches it, looking for common ground. In both cases, we re considering which items we re going to want to make sure we retain in the culture, as well as ways the target has approached the talent issue. We re also asking, early in the strategic planning phases, questions such as: Who and what do they have that can help us get to where we need to go from a business perspective? Is this business going to help us get where we want to go? We then validate our assumptions through the diligence process, using much of what Mary and Chris talked about: general information, and information that we get through interviews or observing their teams. To understand the way they do business, we review the formal documents they provide, focusing on where they put their discretionary dollars. Is it in their health plans or some kind of retirement plans? What processes do they use to make decisions? Do they have large policy manuals or none at all? Do they have a fl at organization or not? The output from this work helps us refi ne our business plans, construct our retention plans to make sure we re keeping the right talent for the right period of time and develop better integration plans. Jim: Can you share some background on how your companies decided to dedicate an HR function to M&A work? Liz: At Boeing, the decision to have an HR role for M&A was made before I joined the company, largely because of the realization that the people we bring in through a deal, and how we manage them, has a lot to do with whether or not we ultimately capture the value from the deal. While we make sure we cover all the traditional elements of due diligence and the basic blocking and tackling of HR, we ve learned that if HR really focuses on how our work and plans can enable the business strategy to succeed, we can go very far. Chris: IBM s team got started around fi ve years ago in response to seeing that many of the risks and issues around business case realization had to do with organizational implications. The company decided to establish a dedicated team to identify those risks early on and focus on mitigating them throughout the integration. Interestingly, we have had discussions about the placement of this team within HR, given our scope and focus on change management, and the value realization areas of acquisitions. Arguments have been made that this team could well sit within corporate development. However, for all things people-related, it makes sense for us to be within HR. We re similar in that we get involved at the pre-due diligence phase, researching the target and its leadership. This helps us hit the ground running in due diligence. Talent and Culture in M&A 3

4 But in essence, we are focused on mitigating the organizational risks that originate in many different functions or processes, not just HR, so we need to ensure that we have a cross-functional view and are looking at integration across all functional areas. One of our key areas of focus is leadership, because we ve found that leadership is the most important element of any type of transformation. If you don t have explicit, supportive, visible leadership that the rest of the organization can depend on in terms of driving and supporting the change, it s very diffi cult to get the rest of the organization behind the transformation. Mary: At GE, we have our business development team and the HR M&A Center of Excellence (COE). Over the last 10 years, corporate has tried to make sure that we in HR put as much emphasis on the business development piece as the integration piece. So while I m in HR, I m also part of an HR M&A COE and, as I said earlier, the Acquisition Integration Council, which itself sits directly within the business development team. The person who heads up that council acts in the capacity of a Chief Operating Offi cer. So there s someone in my role across every single function within the business. One of the reasons we put more resources in the HR function was that we realized we weren t giving suffi cient time and effort to the talent and culture implications of the great companies we were acquiring, and as a result, we were actually undoing all the good things for which we purchased the company in the fi rst place. Our path to where we are today has been a 15-year transformation, and we re still not done. It s very important to GE to continue to raise the bar on both the cultural and talent assessment aspects of what we do, and apply this capability regardless of the size of the acquisition. And we ve been able to prove that we have been more successful once we put these roles and capabilities into place. One of the ways we did this was by analyzing when productivity typically dips, which is right after an acquisition is announced. We ve been able to show that by bringing these resources and processes to bear, we ve limited the duration and extent of that productivity drop, and can recover productivity much faster. Jim: We often hear that business leaders struggle to see the immediate benefits of culture work and how that fits in with all their other priorities during a deal. What are your views on this, and how do you tie your cultural work to the deal s strategy, goals or risks? Chris: We address this by starting with the business case. We look at the specifi c value levers, the drivers for that business case, barriers to achieving them and the organizational implications. We then take a look at the change management activities that can help to realize the value and mitigate our risks. My experience is that when you tie the change management program to the value drivers of a deal, you will be far more successful in demonstrating and articulating the value of the work that you re doing. It s not easy. But we make a strong effort at the beginning of the program to identify those value drivers and ensure that we re aligned with them. And if they change, we shift our strategy to remain aligned. Mary: At GE, our senior leaders see value in the cultural focus and are willing to put money in the pro forma and the integration budget to ensure we bring the right resources and tools to bear in addressing the cultural challenges. However, the one thing we need to do better is show leaders the one or two top areas or levers that will really help transform the business and help them start to meet their pro forma sooner rather than later. For example, we just signed a very large deal, and the fi rst thing you ll hear on every call we get from the senior leadership team is, I m worried about the culture. So we re trying to make sure that we launch surveys, tools and other initiatives throughout the integration period, and continue to monitor what s going on from a cultural perspective. Jim: So for a deal, it sounds like the goal is to identify just a few critical areas of culture rather than every component. Mary: That s exactly what we re focusing on, in part to avoid boiling the ocean. We ve gotten feedback from our senior leadership team to focus just on the two or three things, at most, that will actually help move the dial. Our path to where we are today has been a 15-year transformation, and we re still not done. It s very important to GE to continue to raise the bar on both the cultural and talent assessment aspects of what we do, and apply this capability regardless of the size of the acquisition. Talent and Culture in M&A 4

5 Liz: I agree with Chris and Mary that this is probably the most diffi cult piece we have to deal with. As Mary said, everyone is worried about the culture and keeping the target s culture the way it was. But the reality is that certain things need to change for any company to become part of Boeing. And every acquisition is different, so what you may need to keep for one acquisition, you may have to change for another all of which is a challenge to explain to management. To make this more effective, we ve been trying to articulate and identify, for each deal, what we want to keep operationally and the impact on our processes. That changes the business dialogue across the functions as well. What also helps is including the acquired team earlier in the process and getting their input on what it will take to succeed, based on one common strategy for the combined business. Jim: Can HR contribute at the level that you do in the talent and culture areas without first being functionally excellent at all the traditional elements that come under HR s control? Liz: No. The most important thing is to get the basic blocking and tackling right. Without that, you can t excel anywhere else. At the end of the day, the teams will tell you, If the paycheck isn t right, you might as well pack the rest of it in. Mary: I agree. First and foremost, compliance is at the heart of everything we do in the HR function across GE. It is also imperative that we are seen as a strategic business partner with all of our business leaders. Without that reputation and credibility, we wouldn t have the strong seat at the table that we do. And you have to earn that trust you can t ask for it. We ve earned it over many decades, and it s now ingrained in the way we operate. Today, at a large GE business meeting, HR sits to the right of the divisional CEO, and the CFO sits to the left. That s how critical the HR function is seen across GE. Chris: I agree that we have to have the basics in place in HR, around benefi ts, compensation and compliance. And at IBM like GE HR, Finance and IT are all strategic functions that play very signifi cant roles in governing our organization. Jim: You ve all emphasized change management, and we know how important it is for that to start from the top. How do you equip leaders with change management skills? Is that an embedded capability or something you try to address during integration? Chris: At IBM, it begins when we re selecting integration executives. We defi ne the success profi le for that role in the particular deal and make sure it includes recognition of, and sensitivity to, organizational change and how to be a change leader, rather than a project manager. All IBM leaders at senior levels have had training in the change management space, but it s something that continuously needs to be reinforced. Once we select the right integration executives, we do boot camps with them to ensure we re equipping them to execute the complete role, not just the change management piece. We build change training into the boot camp, and also reinforce it in leadership alignment sessions and dedicated workshops we hold for these leaders. The key is that it s not a onetime event. It s not easy, but it is something that s necessary in our view. Mary: We are really being challenged to fi nd and build a suite of scalable processes and tools to ensure we re focusing on the right talent and cultural areas, whether it s a six-person deal or a 6,000-person deal. We re also trying to help the overall integration leader see that talent assessment isn t a one-shot deal and that initial assessments can change over time. Talent is an area that must be assessed frequently, over the course of 12, 18, 24 months. We re helping the leadership team get comfortable with the idea that it s okay to part ways with someone we might have initially targeted for retention agreements and other programs. It seems to be a recurring theme for us that when we assess talent early, we may have some misses. And our leaders are not always as comfortable in pulling the trigger to say, You know, GE might not be the best fi t for you. So our role is to help them understand it s best to say goodbye to that person as soon as we make the determination our assessment was off the mark. But one difference for us is that my team doesn t focus on benefi ts, compensation and the compliance issues. What we try to do is ensure that we re looking across all the functions. Talent and Culture in M&A 5

6 The other key is continuing to assess talent throughout integration. Early on, right after the honeymoon period, you re going to have the most exposure to the acquired company s top leaders. We ve found that we ve missed some incredibly talented people who were working more behind the scenes during the earlier phases. To ensure we can identify those people, we stress that it s not just the HR function s job to fi nd them, but the role of every function involved in the integration. So we re starting to build a rhythm on a quarterly basis throughout the integration period to tap into all of those other functional areas to surface those really good people and fi gure out how to support them, whether through compensation, getting them into our best leadership classes and so on. Jim: You mentioned building a rhythm. What do you mean by that, and how do you hold people accountable for identifying this kind of talent? Mary: We have mandatory, quarterly reviews from an HR and senior leadership perspective, essentially to monitor how deals progress. Part of the review deck for these sessions is a section on talent. We ll review that material and continue to do that throughout the course of the integration. We ve found that it really helps to put a little more discipline and rigor into the process. It s not just the HR team who s looking at talent; it s all the other functional leaders. We put this goal on their scorecards, or their monitoring radar as well, so that they are accountable. HR s role is really to manage this process in conjunction with the acquisition and integration overall leader, since that person has a role in managing integration across all the other functions. From a cultural perspective, our biggest challenge is fi nding the resources to help drive our change acceleration process. We don t have dedicated people as part of the M&A COE, but we do have people across our company who are CAP coaches, meaning they re trained in GE s change acceleration process. Jim: Switching gears a bit, what kinds of deals, and in what parts of the world, present the biggest challenges? Liz: At a very high level, the most diffi cult deals are those where it s not clear who the eventual leaders will be. While that could happen with any size deal, it normally happens with smaller deals. From a country perspective, it s any place we haven t done a lot of work before. We re looking at deals in Asia right now where we haven t had as much experience, so we re spending a lot of time working with our teams, getting them prepared for the differences and helping them become aware of how the terms might be structured differently, as well as how integration will have to be somewhat different. Mary: The deals that are most diffi cult for us, regardless of size, are those that are not resourced appropriately and on a timely basis. Our M&A COE can always tell when a business team has not been given the resources the deal needs. But the good news is that we re able to escalate that pretty quickly. To Liz s point, you would see that happening more on the smaller deals than the larger deals, but we ve had issues with very large deals as well. Sometimes, the right resourcing was put in place early on, but six months down the road, the resources just fall apart, and it doesn t hit the radar screen in a timely manner. Those are lessons for us, and we still bear the battle scars from those integrations, so we re trying to make sure that we keep that uppermost in everyone s mind. From a country perspective, some of the acquisitions that I ve done in Eastern Europe have been the most challenging because of the culture there. The fact that they lived under a communist regime for so long makes it hard to adjust to our approach of putting all the issues on the table and working through them as a team. So that doesn t always work in a way that we, as a global company, would want it to. The other geographic area is China, where we do more joint ventures than acquisitions. It s somewhat similar to the issues we face in Eastern Europe, because modes of communication and the speed at which we want to drive things to completion are very different. And that really centers on differences in national culture. Chris: For us, it comes down to issues around the complexity of the deal itself. Is it an area that IBM is familiar with, or a completely new area? And how do we make decisions on how much and what parts of the acquisition we integrate, so that we don t destroy its formula for success, but also ensure we re maintaining that business in such a way it can be successful. And throughout all that, we are considering how we achieve effi ciencies and synergies from the combination. HR s role is really to manage this process in conjunction with the acquisition and integration overall leader, since that person has a role in managing integration across all the other functions. From a cultural perspective, our biggest challenge is finding the resources to help drive our change acceleration process. Talent and Culture in M&A 6

7 From a country perspective, I think language is always a challenge, especially for leadership assessments, where we need experienced and equipped resources in a geographic area to do these assessments to the standard we expect. It can also be diffi cult trying to get a real sense of the culture of an organization. So much of that has to do with language, and there s a lot that s lost in translation. So ensuring that you have resources you can rely on that are equipped and enabled to do this type of assessment in the native language is something I d emphasize. Liz: A really encouraging change I ve noted is that we now have more of a pull system developing where the business leaders know there s something around the talent and cultural aspects, and they re more willing to seek out support to try to realize value in these areas. Chris: I would echo Liz s point with one caveat. There s a double-edged-sword aspect to that in terms of going from a push to a pull mode. If you don t have the resource capacity, it becomes even more challenging to deliver. So it s great that leaders are recognizing the value of a cultural focus, but if we don t back it up with the requisite resources, it can be even more challenging. Jim: As we close, let s talk about what the nextgeneration work looks like in this area. What are you being challenged to do to improve by your business leaders? Liz: We re challenged to look at more complex types of relationships such as joint ventures and partnerships. For the talent and the culture pieces, we continue to push the envelope while still making sure we re doing the basics well. But even with the basics, we re challenged to look at some things differently, based on the very different situations we re facing. So we re evaluating different types of cost structures, different ways to look at these things than we have before. So, it s really about more complex relationships and market situations that call for different thinking. Chris: For us, it has a lot to do with continuing to refi ne and develop our focus on the business case and value drivers, and making sure we have a tight connection with that, and that the actions we re taking are adding high value, rather than just incremental improvements. The complexity piece is there as well, so we really need to understand what that complexity is and then be able to respond appropriately to it. The other element is change leadership enablement, not only from the perspective of the integration executive who s leading the integration for us, but also the full integration team and the acquired leadership team. We need to ensure all those leaders are equipped with basic change management skills to understand their role and responsibilities in leading this change and becoming effective change agents for the integration. Mary: A next step for us in the realm of culture is continuing to determine the top two or three things the levers that can really make a difference with the business that s been acquired. And then getting leadership to agree, and put the necessary money and resources into those areas and follow all the way through. We talk a lot about organizational optimization, but I don t think we re really hitting the mark there. Not because we don t want to or our business leaders don t want to, but because, in the course of an integration, the business team is still trying to drive and run the business, and make it profi table. So by bringing in another set of resources, similar to what IBM has done, we re hoping to raise the bar in that area. Talent and Culture in M&A 7

8 About Towers Watson Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 14,000 associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Copyright 2011 Towers Watson. All rights reserved. TW-NA