Impact of M&A on HRM in FMCG Sector

Indian Institute of Foreign Trade (IIFT)

Executive Post Graduate Diploma in International Business
(2014-16)

By
(Group 7: Akshay4A|Ashirvad 8A|Kavita 19A|Rakesh-30A|Sachin-36A|Shiv-40A)

Impact of M&A on HRM in FMCG Sector

Contents
1. Introduction....3
2. Key Issues
2.1
2.2
2.3
2.4
2.5

Communication ....4
Power and conflict ....4
Culture ...4
Operations .5
Geographical nuances ......5

3.0 The role of HR ....6

4.0 Opportunities for HR ....7
5.0 Hazards for HR...7
6.0 HRs role before the Merger .8
7.0 HR as an internal consulting group before the Merger ..10
8.0 Conclusions.10

Impact of M&A on HRM in FMCG Sector

IMPACT OF M&A ON HRM IN FMCG SECTOR

1. Introduction
Mergers and Acquisitions have become a common phenomenon in the marketplace.
There could be various reasons for M&A to happen some of which could be the
following:
To achieve economies of scale
To acquire better technology
To avoid bankruptcy
People are the key to making a merger work, and it is the people-related problems like,
culture clashes, management disputes, loss of talent and the inability to manage change,
which are the basic reasons why mergers fail. The obstacles to achieving success with a
merger or acquisition are:
An inability to sustain financial performance
Loss of productivity
Incompatible cultures
Loss of key talent
A clash of management styles
An inability to manage / implement change
Objectives / synergies not being well understood
Communication
A KPMG study showed that 83% of mergers and acquisitions failed to produce any
benefits, and over half actually ended up reducing the value of the companies involved.
That percentage is only astonishing when one considers how many mergers occur in a
year, and how few companies seem to think matters through (particularly cultural and
systems methods) and consider alternatives. But, the opportunities are also immense. For
every eight failures, there is a case where both companies emerge stronger (such as the
Impact of M&A on HRM in FMCG Sector

merger between Fiat and Chrysler after the latter emerged from filing for bankruptcy). In
most cases, the success factor is where people in each organization show that they value
the other, and actively work together to bring out the best values in each.
Some key issues that may arise during Mergers and Acquisitions are as follows:

2. Key Issues
2.1 Communication
As people look inwards to try to find their place in the merged company and attempt to
see their future in it or outside it, the productivity drops. The grapevine can become a
major source of headaches. Constant, consistent, and honest communication from leaders
and HR is essential.

2.2 Power and conflict

It is essential to bring conflict out to the surface and deal with power issues honestly. If
one group is obviously in charge, that should be admitted early on so people dont waste
time with second-guessing. Often, people get wrapped up in turf wars which are
destructive to both sides, rather than trying to figure out roles for both sides and have a
win-win situation. As the acquisition of Chrysler by Daimler-Benz shows, profitability
and practical matters can take a back seat to personalities and power relationships.

2.3 Culture
Organizational culture is an organizations shared values, beliefs, and preferred ways to
behave. It is a key to success and though many talk about it, few seem to have the skills
to grapple with culture and work with both organizations to assure a good fit. Many
organizations use a brief cultural fit survey to assist them during mergers.

Impact of M&A on HRM in FMCG Sector

2.4 Operations
Ideally, processes can be examined to see where true synergies lie. In many mergers and
takeovers, power relationships determine operational changes, rather than actual
efficiencies or quality concerns. By making changes with facilitated cross-platform teams,
HR can help to ensure that the best operational practices of the two organizations are
preserved.

2.5 Geographical nuances

It is essential that FMCG buyers understand the local market nuances associated with
other territories. Following are the list of challenges presented by different emerging
market geographies:
Asia: Strong competition from rival bidders and alternate sources of funds makes
valuation one of the key issues for doing deals in Asia. Based on our data, about 50%
deals begin diligence but are aborted because of valuations.
Latin America: The regulatory environment in Latin America (e.g. Brazil), particularly
for tax and labour, is a complex one. There are high taxes and social charges on payroll,
sales and income. Taxes are diverse and legislation changes fast. Also compliance with
corruption laws is an issue in many companies, and there may be undisclosed balance
sheet transactions and commitments.
Eastern Europe: Eastern Europe is in some ways becoming closer to a developed rather
than a growth market. Corruption in businesses related to government contracts is still
an issue in many Eastern European countries, although governments are taking steps to
be more transparent in their purchasing, for example, using on-line auctions.
Africa: Government policy is more central to deals in Africa. Some countries can change
the rules on tax or legal parameters quickly. There is a massive deviation of culture and

Impact of M&A on HRM in FMCG Sector

economies within regions. Companies that have failed often have not had thorough
understanding of the local people, business conditions and environment.
Under these circumstances, the role of an HR manager becomes very important and if the
issues are handled properly, M&A can be a huge success. Mergers present opportunities
and hazards for both the company and the HR manager.

3.0 The Role of HR

HR may be in a unique position to question assumptions about the nature of assets and
synergies. For example, investment bankers have a narrower training, and are rewarded
for making deals due to which human issues tend to get lost or overlooked.
The HR manager, on the other hand, has an opportunity to influence events so that each
company comes out stronger. But, to do that, the HR manager must preserve their own
position. Consolidation and cost cutting may be great hazards to HR, but the
opportunities are tremendous if you can convince the leaders of your value in bringing
the combined company together. Before, during, and after the merger, HR may be
responsible for assuring that cultural issues do not derail integration, for increasing
innovation, for keeping communication going in all directions (upwards, downwards,
across departments, across organizations) and for lessening the impact on those who are
laid off and on the survivors.
Even at the highest level of the company, HR can have a role. The new leadership team
will need to work together on a daily basis, despite cultural and personality differences,
power issues, and other barriers. HR can act as a facilitator, and also as a coach to
individual executives. Personal and team assessments can be helpful in enabling team
members to work together constructively.

Impact of M&A on HRM in FMCG Sector

4.0 Opportunities for HR

Mergers and acquisitions are often planned and executed based on perceived cost savings
or market synergies; rarely are the people and cultural issues considered. Yet, it is the
people who decide whether an acquisition or merger works. The opportunity for HR lies
in the fact that customer and employee reactions determine whether the newly combined
company will sink or swim. If a convincing argument is made to senior leaders, HR may
gain more power to increase the effectiveness of the organization, and may be able to
mould the cultural changes instead of being pushed along by them.

5.0 Hazards for HR

One result of many mergers is the consolidation of staff departments. Eliminating one of
the HR departments is sometimes stated up front as a justification for the merger. If both
HR departments are kept, there may be issues of interdependence and autonomy, and
hard decisions about which policies and services should be shared and which should stay
separate.
In many cases, the parent company has taken on a great deal of debt to finance an
acquisition. The next logical step is to cut costs and HR is often the first department on
the block. With the advent of outsourcing agencies, even HR people in formerly
indispensible functions such as benefits administration can now be replaced for short
term gains. This makes it particularly important for HR managers to make a strong value
case to the senior leadership.
Fortunately, there are also opportunities for HR to bring out synergies, so that the
combined company is stronger than the originals.

Impact of M&A on HRM in FMCG Sector

6.0 HRs role before the Merger

The HR leadership has an opportunity before the merger to ensure that both
organizations have a strategy mapped out in advance. Once the merger starts taking
place, people will often be too busy to keep a strategic perspective.
Before the merger takes place, the leaders of both organizations, at least of the dominant
firm, should have a strategy mapped out, including communications to employees and
customers, where layoffs will take place (if any do), and how the cultures should be
merged. A SWOT (strengths, weaknesses, opportunities, and threats) analysis should be
done for the combined company. If possible, a brief culture survey (preferably done via
interviews as well as paper or Web/e-mail) should be undertaken in both companies to
discover what the cultural differences are.
Sometimes this will be obvious in some aspects. For example, one culture values teams
and bottom-up innovation, the other favours command-and-control tactics. Also, there
could be different views on how and whether individuals and teams are rewarded for
innovations, how failure is dealt with, whether conflict is addressed openly, etc. This will
prevent disconcerting delays between the announcement and the implementation of the
merger/takeover. If the real purpose of the merger is to acquire another companys
assets, in terms of a particular product or brand, its factories or patents, etc., that should
be acknowledged and dealt with up front.
Finally, before the merger or acquisition takes place, the leadership teams should
consider the non-financial issues. Will people in the two companies be able to work
together? Will acquiring a company, or merging with it, destroy the properties or drive
away the talent that made it worth having? Can a simple partnership, alliance, or even
stock ownership without integration provide more benefits than combining the two
companies?

Impact of M&A on HRM in FMCG Sector

These issues may be overlooked by the leadership teams and it is the job of the HR
manager to point out these issues. Some questions to ask the leaders, in person or via
open-ended survey, are:

Are there viable alternatives to the merger (for example, greater integration with
suppliers, partnership deals etc.)?

Is there a communication strategy to keep employees and customers informed?

Are the cultures for the two organizations compatible? Is there a plan for merging
the cultures? Will one be dominant, and, if so, how will people operating under
the other culture be brought on board?

What are each organizations key strengths, weaknesses, opportunities, and

threats?

What is each organizations strategy? How will they be merged?

One way to get the answers to these questions is to have an outside agency speak with
senior leaders, one at a time or, if that is not possible, to have them circulate a brief
confidential survey and present the results at a facilitated meeting. Difficult questions,
for example whether there are alternatives to a merger, should be raised as early as
possible.
The HR manager may need to raise the issue of culture - how people work, how they
think, what they value and how they view the other organization. If the acquired (or
acquiring) organization is viewed with disdain, these issues must be addressed up front.
Likewise, severe cultural differences must be addressed. They can be overcome with
attention and work. The HR leadership may, because of its skill and background, be
placed in the uncomfortable but important position of persuading corporate leaders to
admit the truth to themselves, and to employees.

Impact of M&A on HRM in FMCG Sector

7.0 HR as an internal consulting group

HR is often one of the few units which can work as an internal consulting group during
a merger or takeover, along with quality or process engineering teams. In this light, HR
managers may be able to use management coaching skills to help managers and
executives to communicate effectively and completely, to address power issues, and to
deal with cultural issues. In some cases, HR may take a more active role; in others, HR
should act as a coach. Individual HR staffers need to understand their current skills and
may need to update their knowledge or practice with role playing to ensure that they are
working as constructively as possible.

8.0 Conclusion
By knowing what makes mergers succeed, keeping an eye on the human issues as well
as the financials, and using appropriate tools, companies can make mergers work. The
job of the HR manager is to quickly develop a strategy for helping the company to achieve
the synergies it needs and develop game plan for leading the process. It helps to have
achievable goals, with stretch targets, and concrete milestones for implementation.

Impact of M&A on HRM in FMCG Sector