How Skills Planning Can Enhance M&A Synergies
Mergers and Acquisitions (M&A) offer an effective strategy for companies looking to enhance their competitive advantage and bottom line. According to the Institute of Mergers, Acquisitions and Alliances, the number of M&A deals decreased by 8% in 2018. However, the average value of these deals has increased to 3.8 trillion USD.
These numbers show us that the financial stakes of M&As are higher than ever, and the importance of achieving post-merger synergies is vital to the long-term success of the companies involved.
Unfortunately, successful M&A deals are the exception, not the standard. Research from the Harvard Business Review found that the failure rate is between 70 percent and 90 percent.
How can you ensure your company is the exception?
What Are Synergies?
A synergy “arises in a merger or acquisition when the combined value of the two firms is higher than the pre-merger value of both firms combined.” The most common types of synergies are “cost-saving” and “revenue-upside” synergies.
Cost-saving synergies focus cost reductions, due to efficiencies from combining the businesses. Revenue-upside synergies are achieved through incremental revenues acquired through the merger.
There are other factors besides revenue and cost that generate synergies and can significantly impact the success of a merger. Such factors are often overshadowed by these more apparent activities that directly contribute to the bottom line and the value of the acquisition. However, these “soft” synergies play a crucial role in the sustainability and long-term success of a merger.
Arguably the most significant “soft” synergy is people. So many companies miss the mark when it comes to developing and executing a successful workforce integration strategy. Another study from the Harvard Business Review showed that companies with “especially large cultural mismatches saw their yearly net income drop by over $600 million.”
Here’s the bottom-line: People can make or break your M&A deal.
How Can You Focus on People to Improve Synergies?
Align Skills and Capabilities. By evaluating and recognizing the strengths and weaknesses of both workforces, executives can align skills and capabilities to enhance synergies. For example, Company A’s workforce may be strong in a particular skill set that Company B lacks and vice versa. By filling existing gaps, both companies experience greater operational efficiencies that generate positive cost-saving synergies.
Identify Key Managers and Employees To Lead. Selecting a capable management team to lead both companies through this transformation is critical to obtaining buy-in from your workforce. You need to choose the right people with the right skills from both companies. While some of these skills are merger-specific “hard” skills, most are “soft” skills such as leadership, communication, problem-solving, and adaptability.
Evaluating potential candidates for your management team shouldn’t be an informal process. Leveraging data-driven evaluation will ensure you blend the right mix of experience and skills to form a team that can lead your workforce through a successful transformation.
Prioritize Culture Integration Along with skills, successfully merging cultures can create long-term synergies for a new company. However, this can be one of the hardest things to achieve post-acquisition, especially for companies with significantly different cultures. Before the acquisition, executives should evaluate differences in-depth to see if the two cultures are compatible. If they choose to move forward, this analysis will serve as a strong foundation for a strategic plan to merge the cultures successfully.
Retain Top Talent The last result you want from a merger is to lose the top talent you just acquired. These people may be responsible for achieving several synergies. Losing them could be a massive blow to the success of your merger. By taking the actions noted above, you can avoid a mass exit of top talent and even leverage their individual skills and capabilities more as a combined force.
How Can Skills Planning Help You Achieve Successful Workforce Integration?
Skills planning provides you a clear snapshot of your current workforce’s skills and capabilities. The approach will help you recognize the strengths of your workforce as well as any skills gaps. An excellent skills planning tool will allow you to collect and analyze data efficiently so you can focus on leveraging any insights to make better business decisions.
Successful workforce integration begins with understanding both side’s strengths and weaknesses. From this data, you can recognize opportunities for synergies in skills gaps. Merging each workforce should help close these gaps, not expand them.
Your skills planning tool should also utilize data visualizations to reveal these gaps clearly and quickly. For example, the graph below shows all skills for the IT department, compared to the ideal standards for those skills:
Notice how you can immediately identify the gaps and the strengths of your combined workforce. Now rather than scouring excel spreadsheets for the answers, you can spend valuable time developing an effective strategy from these insights.
Skills planning should be performed prior to acquisition and post acquisition. Activities like selecting the merger leadership team may occur post acquisition. You can leverage skills planning on a smaller scale to identify the right people with the right skills for the position.
After the new company emerges from the transformation stage, skills planning can become a recurring activity used to strengthen and expand your workforce, identify high performing teams for projects, and win competitive bids.
Related Posts: What Are the Business Benefits of Having a Skills Inventory?
M&As provide opportunities for companies to expand beyond their current potential. However, key synergies must be realized to reap the long-term benefits of a merger. Skills planning can help you achieve such synergies generated from workforce integration. Your people are your greatest asset. By strategically aligning your new workforce’s skills and capabilities, you set your new organization up for long term success beyond the initial M&A deal.
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