When a Strategic Business HR View is Important?
By David McIntosh, Strategic Business HR Consultant, McIntosh & McIntosh Consulting Ltd.
When there is the decision to acquire and merge businesses, leading up to the event the business management teams, bankers, accountants and tax specialists plan, structure, finance, negotiate and execute the transaction in the best interests of the respective businesses. Much of the detailed due diligence and extensive modelling undertaken fails to properly take into account one of the most important aspects of any business driver for change – people.
But why should this be relevant? Shareholders and stakeholders need to see value for money, the opportunity for growth, sustained revenue/profitability and increasingly importantly to understand and manage risk. However we also know that many decisions on whether transactions go ahead are justified on the benefits of the expertise of employees of the merged firm.
In many situations HR due diligence tends to focus on the employment costs, obligations and risks but fails to acknowledge the need for both a strategic and operational HR view – only in doing so is it possible to understand the true value of a business today and importantly, going forward. How many times have we heard that the failure or lack of substantive progress of an acquisition or merger has been due to how the people issues were managed?
But of course it doesn’t stop there - businesses constantly need to develop or review their strategy in the context of changing business conditions, following acquisition or the appointment of a new CEO. The way in which people are deployed, managed and motivated and the availability of skills and knowledge shape the business strategies which are inextricably linked to the HR strategy. Consequently any HR strategy needs to be developed and implemented in the context of the real business issues whilst maintaining the commitment of the people/workforce and continuing with the day to day business.
Outlined below is how is how HR help on both a strategic and practical basis, and some examples adding value in acquisitions, mergers or change management situations.
Due Diligence - in addition to the main employment costs, this should include a detailed review of all the employment issues and opportunities such as:-
* Recruitment, retention, headcount and employment trends
* Board and Senior executive contracts including lock-ins
* Management team and employee terms & conditions
* Employee handbook/s, company policies and procedures
* Trade Union agreements, employee relations and employment legal Issues
* Benefit programmes, compensation, LTIP programmes and benchmarking
* Training & development and talent management programmes
* Assessment of stability of workforce, employee communications and culture
Case Study
The HR due diligence of a high street business identified 6 pending Employment Tribunals. Upon further investigation, it was clear these were significant claims for sex discrimination which could be considered as a class action claim of around £300,000. In developing an improved understanding of the business risk (financial, legal, operational, reputational & time), this was factored into the final purchase negotiations and provided the new management team with the opportunity to successfully manage the issues.
The shareholder/s need to understand what can be achieved by the people in potential or new acquisitions.
Senior Executive Assessment - one of the challenges for business leaders is to identify, develop and retain outstanding people who are key to the development of the new organisation. Senior Executive Assessment provides an objective evaluation of the individual and collective ability of the senior management team.
The objective of the assessment is to provide business leaders with:
* A comprehensive analysis of the management capabilities with an organisation
* The basis for decisions on leadership positions
* Development of leadership potential
* Robust and realistic succession planning, and
* Identification of the best people motivated to stay.
Case Study
Following the acquisition of an international finance business and a review of the business strategy, a full assessment of the existing senior management team was undertaken. The new CEO was then quickly able to understand the strengths and weaknesses of both individuals and the team as a whole and was rapidly able to implement effective changes. Whilst this included the managed release of one of the senior team, three key top performers were appointed to senior business head positions.
Senior Executive Assessment can bring a level of objectivity that is difficult to replicate internally.
Business Led HR Strategy - needs to be developed and implemented in the context of the real business issues whilst maintaining the commitment of the people/workforce and continuing with the day to day business. The HR strategy development process should include the following:
* Understanding the business strategy
* Identify the key business and HR issues
* Develop the strategic framework
* Define specific HR strategies
* Assess HR capability and resources required
* Obtain buy-in from the senior management team and shareholders
* Prepare implementation plans
Case Study
A strategic review by an international group identified the need for a new business to increase profitability through improved integration with the group and better leadership whilst ensuring the existing local CEO remain on board. An interim chairman was identified to work closely with the local CEO. As the strategic HR advisor, the role was to develop the HR strategy, including the organizational structure, resourcing, retention, performance evaluation and management, training & development and compensation. In being able to consolidate the business over a period of six months, the local CEO was able to manage the business going forward, improving revenues and profitability.
Organisations need to define a strategy which is unique to their own situation in terms of context, goals, their people and the demands of the shareholders.
Independent HR Advice - business leaders require trusted strategic HR advice, especially for mergers, acquisitions, divestments, management of portfolio businesses and major change programmes. Benefits include:
* Consideration of the new shareholders’/business leader’s requirements
* Bring to the table a very different set of experiences that can be successfully applied in a another context
* See the ‘wood for the trees’ – past history, obstacles and personalities can obscure the real issues
* Provide a fresh perspective and challenge preconceived ideas,
* Act as a facilitator
* Be an independent sounding board
Case Study
Following acquisition by a private equity firm, the new subsidiary business was required to develop a significantly different business strategy and consequently a new HR strategy. Although the business was high in asset value, the headcount required to operate the business was relatively small. Material change was needed in terms of the development of the HR strategy. Having delivered the strategy, the role was not only to assist with its implementation but to equip the existing HR team with the capability to meet needs of the business forward.
Not having a personal vested interest provides the opportunity and clarity to consider issues from a strategic business HR perspective.
Very often we hear HR complaining about not being invited to the top table - to be asked we need to ensure we get the basics right, gain the confidence of the CEO and the board that we can deliver on not just on the day to day but that we can add value over on those issues that have a direct impact on the performance of the business today and in the future.
David McIntosh, Strategic Business HR Consultant
mcintosh.mcintosh@ntlworld.com
Tel: 07775 505898
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London, May 2008 | 
