How to ensure smoother employee transitions during M&As

Ajit Prabhu | Updated on July 21, 2020

Make the team that is crossing over feel welcomed, deep-dive into the culture and style of the entity being acquired, and identify potential leaders that can be groomed into future leaders

According to the Harvard Business Review, 70-90 per cent of acquisitions either fail to achieve the planned targets and synergies or fail completely. This is a shocking number, and I often wonder why that is. After completing 13 acquisitions and five employee transitions from our clients, I believe I have some insights into why such failures happen and the answer lies predominantly in a cultural mismatch. What does that mean?

Every acquisition or transition inevitably means change for those being acquired in terms of — responsibilities, policies, systems and tools, how success is determined, location, etc. There is a period of uncertainty as details are worked out, creating a challenging time for those impacted. How can we frame these phases to help employees navigate the transition? Recognising those and helping employees quickly go through these phases eventually decides how successful an acquirer is in executing the intent and achieving success in an acquisition.

Stage 1 – Shock M&A discussions inevitably involve secrecy. Most employees are not aware of the impending change. So naturally, when they are informed, shock is the natural first reaction, followed by disbelief and the inevitable questions around “how can they do this to us?”, “who is this new company?” and “what does this mean for me?” While this initial reaction is the norm, every effort should be made to pass through this phase as quickly as possible and ensure that people understand the “why” behind it.

Stage 2 – Resistance Shock is usually followed by the resistance to change. Not everyone will go through this phase, but conventional wisdom suggests that one-third of the employees will embrace it, one-third will sit on the fence, and the remaining one-third will actively resist. Fear of the unknown and the potential loss of rhythms, familiar processes, tools and systems threaten their comfort and stability.

This phase requires the leadership of the acquiring business to spend time with managers and employees of the acquired business to understand what intrinsically motivates them and the best practices and values that make them who they are. Process and organisation structure will not force change. Establishing trust, understanding, open communication and respect for each other will instil the desire to change.

Stage 3 – Confusion This is the time when people are in the midst of change and they do not entirely know what is going to happen. They may not know who’s going to stay, who’s going to go, who their boss might be, what are the new policies that will impact their career, work locations, or what the expectations of the newly acquired company and its leaders will be.

This can lead not only to confusion but also frustration as they try to see the way forward without the benefit of having all the answers. At this stage, patience and positivity will go a long way towards preparing them for the future. Too often we rush to integrate process and systems, assuming people will just blindly follow the new ways, without fully understanding the company being acquired. I believe that most acquisitions and employee transitions fail due to lack of attention to the softer elements, and winning the hearts and minds of those being acquired.

Stage 4 – Alignment This is the point at which people have digested the change, and while the way forward may not be 100 per cent clear, they can see the new emerging future. They begin to accept the new situation and participate more actively in thinking through the next steps. People might still hold on to personal biases established by their prior company experiences and culture.

It is also important to recognise that, as a result of the acquisition, and the infusion of new employees into the organisation, the acquiring company itself changes character. They also don’t remain the same. Successful leaders are those who respect people, master the art of instilling the desire for change, develop a shared vision and align leaders and employees on both sides.

Stage 5 – Commitment At this stage, employees “really” have accepted the changes, they are confident in their role within the new organisation, and they are ready for what the future has in store and even for the next change.

Employee’s experience

As we think about these five stages, it is essential to acknowledge that each employee’s experience will be unique both in terms of personal impact and the time it takes to completely adjust. Two critical factors that influence how different individuals respond are: how they view change and their ability to adapt to change.

Managers usually get quickly through the confusion stage and generally spend little time in the shock and resistance stages as they may have been aware of the change approaching. They know they have the responsibility of helping their employees navigate the transition. One must win the hearts and minds of new managers being on-boarded and develop a shared vision for the future.

Let me give an analogy of a train station where two trains are standing. Passengers (employees) have to change from the first train to the other. Looking around, you see individuals at different stages of acceptance. Some will question why this is happening. Others won’t want to leave their current seats on the first train. Eventually, however, everyone has to get off the first train and on to the platform to move to the second train.

When the new train (new company) does leave the station, passengers will inevitably be at different stages of acceptance process which we can illustrate as five different train compartments in the order commitment, alignment, confusion, resistance and shock.

First of all, some people may choose not to board the new train at all. And the others, will board these five compartments at different times. Some will get on right away and get their seats. Some wait until the train gets going, to watch what happens, and then jump on. There will be others who will wait until the train is almost out of the station before grabbing a seat in the last compartment.

And there are those who want to board the first compartment or even be in the engine room. These are the change agents, leaders who make a huge difference in moving people from the last compartment to the first. These are the people that you have to identify very quickly because having one or two such individuals can make a significant difference in how long it takes the whole organisation to adjust to the new beginning.

Guiding principles

Successful employee transition is a bidirectional process. While leaders in the acquired organisation have a role to play in the settling process, here are some guiding principles a company can adopt to enhance the chances of success while integrating a new team:

Make the team that is crossing over feel welcomed and wanted. In doing so, you appeal to their heart (emotional appeal) and mind (rational appeal).

Conduct a deep-dive into the business, culture, and style of the entity being acquired or the teams being realigned. On many occasions, you may discover unique practices which your teams should borrow and embrace with pride. Many M&A transactions focus on implementing their process and practices on the acquiring entity and miss the opportunity to acquire new ideas and practices from the on-boarding entity and teams.

Identifying potential leaders that can be groomed into future leaders is important. Actively look for potential leaders who can play a more significant role and offer them a wider canvas. Spotting this talent early and communicating this to the potential leaders at all levels is critical and often overlooked.

To sum up, throughout the employee transition, as receiving organisation, we must respect different stages and the feelings people go through. We must have the empathy to understand where they are by listening to them, and by being authentic and genuine in our dealings with them.

It is easy to overcommit and gain quick wins, but we must remember that this is a journey and not a short trip. Set realistic expectations and ensure that all efforts are towards meeting these. In the end, we must come together to share our own experiences, learning and how we have built a company with an open culture that emphasises respect and integrity.

The writer is Chairman and CEO, QuEST Global

Published on July 21, 2020

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