Company Culture

Mentorship and M&A: the key to capturing institutional knowledge

By Sarah AlexanderSeptember 14, 2017

In the world of mergers and acquisitions (M&A), there is significant due diligence required to map strategic synergies, financial impact, and investor relations that result from the transaction. But the “people” side of M&A is often overlooked, when it can be one of the most critical components for a successful merger or acquisition.

Leveraging Human Capital in M&A

As Deloitte M&A Institute’s research points out, one of the common rationales for initiating a merger or acquisition is to increase intellectual capital. With this in mind, key questions to ask are: what experience and knowledge does each participating company have? And, what is the most effective way of keeping that knowledge and experience both within the organization and sharing it with each another?

Despite the importance of these questions, The Ayers Group has found that often no systematic retention measures are taken, leading to an estimated 47 percent of all senior managers in acquired firms leaving within the first year of the acquisition and 72 percent by the third year. When these employees leave, the acquiring company is allowing valued resources and institutional knowledge to get away.

On top of that, Harvard Business Review reports that 70 to 90 percent of all mergers and acquisitions fail to achieve their anticipated strategic and financial objectives due to various HR-related factors (e.g., incompatible cultures, poor motivation, loss of key talent, lack of communication, and diminished trust). With this in mind, it is clear that growth through a merger or acquisition is only viable if the participating companies can be combined successfully by paying more attention to the people side.

Facilitating Communication Through Mentorship

Creating a human capital integration plan for the transition can help anticipate and proactively address the confusion, anxiety, and other issues that arise during a merger or acquisition. Experts agree that proper communication (from both sides) can easily head off most of the negativity that can come up during transactions. This is where the power of a mentoring program can be harnessed for a more successful integration.

Mentorship facilitates rapid and effective integration by addressing factors that are commonly associated with failed mergers and acquisitions:

Unclear organizational policies

It is critical for a newly-formed organization to create and communicate policies that are relevant to the new status quo. Rather than a team of executives making key decisions and handing them down from on-high, the most successful processes involve input from people at different levels of the organization. Mentoring relationships are a way to establish trust and garner this input in concert with formal focus groups.

Unclear reporting structure

It is imperative to clarify the lines of responsibility and limits of authority early in the M&A process. Setting people up with mentors means that everyone in an acquired company has someone they can go to with questions about the new structure. It also means that each person will be accounted for when it comes to communicating the new reporting structure to everyone.

Underestimating the difficulties of merging two cultures

Cultural clashes affect M&A outcomes, making cultural alignment one of the top challenges over the course of a merger or acquisition. Mentorship facilitates two-way communication which helps to quickly understand where there might be issues when merging two cultures. The conversations and learning focus in a mentor-protégé relationship also helps both sides understand strengths of the other company’s culture. This mutual understanding and appreciation can help decision makers determine which components to integrate into the newly integrated organizational culture.

Inadequate or poorly timed communications

If employees are not properly informed, negative attitudes can develop. This sentiment is contagious if not addressed up front. Mentorship addresses this issue, since it encourages proactive communication and knowledge sharing. It can also address poor morale by providing an outlet should negative emotions arise at any point in the process.

Departures of key people

One of the key roles of HR after a merger or acquisition is retaining key employees and, in the case of downsizing, selecting which employees stay and which will go. According to The Ayers Group, acquiring companies typically lose four to five of every ten employees. Mentorship is a way to build relationships with those who remain, establish loyalty, improve their engagement with the new organization, and ensure that they feel cared for and listened to.

In the case of downsizing, it is important to quickly assess who the organization can’t afford to lose and what is necessary to keep them. Mentoring relationships will help identify the rising stars who need to stay – either directly or through word of mouth from colleagues and former managers.

Ultimately, mentorship addresses many ways in which a merger or acquisition can go wrong, thus ensuring that your organization’s M&A transaction is one of the few able to realize its full potential.

 

Sarah Alexander

Sarah Alexander

Author & Contributor

About the Author

Sarah is an elite triathlete and independent strategy consultant with an MBA from Chicago Booth. She is passionate about empowering others to achieve excellence.

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