07 Jun Seizing opportunities for talent and technology uplift in M&A deals
Co-authored with Danny Lam, Security Practice Lead at Eighty20 Solutions
The importance of the human factor in realising value from M&A has long been underestimated. Even as digital solutions for capturing and storing intellectual property keep growing in scale and sophistication, knowledge and culture in an organisation continue to be driven by its people. With technology becoming ever more critical in building value and competitive advantage, the people who support and use it need to be front and centre when it comes to an M&A transition.
The expected value of M&A deals has always been calculated on the basis of financial due diligence and analysis. With the growing importance of technology as a driver of competitive advantage, companies are now catching on to the fact that including technology in the audit of an organisation’s assets is critical in determining its potential to deliver future value. But another value driver that can often be overlooked in technology integration following a merger – in both the short and long term – is the people element.
Technology can be a powerful tool during a merger or acquisition, but only when the people side of the equation is considered. Sharing the overall vision of the deal as well as technology initiatives. Listening closely to the workforce. Ensuring people have the required skills. Facilitating collaboration across teams and functions. These are all steps leaders can take to help ensure people embrace technology and use it to its full value.
Mapping the DNA of M&A value, Accenture, 2022
Not only are there a host of user transitions to map out and put into practice, there is a goal of cultural alignment that is often far harder to plan for and execute. Prioritising and navigating both these people pathways is essential for delivering value both from an M&A deal overall, and from ongoing investments in technology.
The growing value of talent
In 2022, talent has risen to the top of the list of concerns for business leaders. In their annual Keeping Us Up At Night report for 2022 KPMG found more than two thirds of CEOs, Non-Executive Directors and emerging leaders say their greatest immediate challenge is talent acquisition, retention and re/upskilling to meet a more digitised future.
82% of companies who say significant value was destroyed in their latest acquisition lost more than 10% of key employees following the transaction – which is a problem when a growing number of deals are ‘asset light’ or made up of predominantly ‘people-centric’ intangibles.
PwC, Creating Value Beyond the Deal, 2019
In an M&A situation this focus on keeping talent on board needs to translate into a multi-faceted strategy to ease employees on both sides through the merger process. Better communication about their role in the future organisation keeps them on board as the transition approaches. Optimisation of technology will help them stay engaged and productive once the new normal is underway.
Fostering culture and engagement
At Eighty20 we’ve seen many M&A deals falter when culture isn’t a big enough consideration in the change management process and program. And research bears this out – a survey by PwC found that cultural issues stood in the way of success for 100% of M&A deals where significant value was lost relative to purchase price. This is clear evidence that taking shortcuts in supporting the culture of combined workforces is going to lead to less value realised.
Investing in employee engagement is essential and something our Eighty20 team treat as a priority for project planning and change management for technology engagements on M&A projects. As technology plays such a big part in our working lives now, it’s not enough to leave this change and communication management to HR teams. Tech leaders need to roll up their sleeves and get involved in communication efforts and not just for the tech integration elements of a larger comms plan. Having IT stakeholders partner across change communications can create opportunities to see and hear where technology can better support culture and cohesion within the new organisation.
A greater focus on integration
While the role of technology in fostering a positive workplace culture shouldn’t be overlooked, getting on top of the fundamentals of tech integration can be mission critical for M&A transitions. At the application level, it’s vital to map the business unit structure of the new merged organisation. This involves a thorough audit of roles & responsibilities, titles, functions and reporting lines to understand the best possible organisational structure going forward and the business-critical applications needed to support continuity and productivity for new teams and their operations.
At the user level, a robust plan for integration is also a must-have, for ensuring productivity and security as well as paving the way for greater cultural harmony. A more organised approach to consolidating user identity – including security and access settings as well as portal and intranet views – will make a big difference to the quality of user experience in a merged entity. An early investment in identity integration and management can also reduce the future workload of IT support teams. When employees are set up with the right permissions and access from day one, they’re less likely to be making urgent helpdesk requests just to access the apps, groups or documents they need to get on with their work.
Protecting brand and security
Limiting time and resources for the planning or scope of user integration don’t just put productivity at risk. There is also potential for poor user integration to harm an organisation’s employer and/or consumer brand or even result in a significant cybersecurity breach. Giving your merged workforce – and new starters – the right level of access through robust end-point management is as much about securing data as it is a demonstration that a new organisation can be trusted to do the right thing by customers and employees.
While best-practice in end-point management and data security is a given for preventing cyber incidents, there is also a culture and education element that’s needed to reduce the inside threat. Employees of a merged entity must know about agreed policies if they’re to follow them and prevent inappropriate sharing of information or use of unauthorised applications. Getting new ideas about security to stick takes time and often it’s part of a culture shift as well as a formal education process. And let’s not forget that changes in file access and sharing won’t be the only change employees are going through. Managing their capacity for change is as much a part of the technology integration plan as the mapping of user profiles to access privileges.
From integration to optimisation
A merger or acquisition is an opportunity to cover significant ground in a short period. It’s all about value at a faster clip through compressed transformation. Companies that treat it as such, from a technology perspective, are reaping the benefits.
Mapping the DNA of M&A value, Accenture, 2022
With more and more organisations making the transition to the cloud for their data and application infrastructure, the scope of tech alignment for M&A can often deliver more value when the end game is reinvention rather than integration. If both organisations are running a hybrid of on prem and cloud based infrastructure there is a risk that a transition program to bring the two together will introduce more complexity – and likely higher costs.
In an ideal world, merging organisations would map out an operating model and build a tech stack to match based on an ideal future state, instead of what’s been inherited. While hitting the refresh button can seem risky and expensive, as a long play it underpins the flexibility and speed organisations can expect from strong alignment between technology, processes and strategic goals.
Our Eighty20 team know from experience that a greenfield approach simply isn’t viable for many M&A scenarios. While we’ve built brand new tenants for some mergers, others have required us to implement absorption of a ‘junior’ technology footprint within a more robust and mature operating environment and tech stack. In any of these scenarios, and many others besides, successful transition and integration will always demand a people first approach.