Wall Street, Dalal Street, Canary Wharf, and for that matter the world of corporate finance thrive on mergers and acquisitions. Pick up any of the major financial dailies and the odds are you will have news of an impending M&A activity. The year 2010 saw more than 50,000 M&As announced with a total volume of more than USD 3 trillion.
India itself saw more than 50 M&As announced totalling to a volume of about USD 65 billion. Recent years have seen a significant rise in cross-border M&A activity, and Indian companies have played a crucial role both as acquirers and targets. Inorganic growth strategies like mergers and acquisitions have been championed by both Corporate Managers and Investment Bankers as important engines that help companies to grow fast, enter new markets, expand customer base, and acquire technology and expertise. Traditional wisdom would suggest that M&As should be able to unlock shareholder value through economies of scale and consolidation of assets and human capital. Research, however, shows that approximately 70 per cent of mergers and acquisitions fail to achieve expected results and about 50 per cent actually destroy value. While there are hundreds of reasons for the high failure rates of M&A, ranging from CEO ego satisfaction to incoherent due diligence methodology, a London Business School research points out that most of the key reasons can be termed “soft issues” which is management parlance for Human Resource issues like cultural differences, mismatch of leadership vision, differences in remuneration structuring and HR policies. An acclaimed McKinsey study on mergers stated that the overwhelming reason was “something loosely called culture”. Organisational culture determines and legitimises what sort of behaviour is rewarded in an organisation, and since no two organisational cultures are same, a merger announcement inevitably confuses employees as to how the new entity expects them to behave. Clearly the need of the day then would be clear and timely communication, and defining the cultural identity of the organisation. When it comes to culture, employee communication and other so-called ‘soft issues’, the Human Resource function has a role to play in making an M&A activity successful. Most experts believe that getting HR involved at the very beginning of an M&A decision would help employees deal with the culture shock post merger or acquisition. This edition of The Human Factor seeks to unveil the HR-related reasons for M&A failures, and find ways and means which could help HR managers to successfully nurture a merger or an acquisition.
With this issue, we also proudly introduce Theory i Management, a quarterly supplement to The Human Factor. Theory i Management will carry case studies and case study excerpts focused on the Indian business landscape. Going beyond just Human Resources we intend to carry case studies that cover a cross-section of industries and management functions in this supplement. It has been a long-standing complaint from students, academia and industry professionals that India lacks a good case study repository. With Theory i Management we take our first step towards fulfilling that gap, and we look forward to your support and feedback in making the supplement a success.
India itself saw more than 50 M&As announced totalling to a volume of about USD 65 billion. Recent years have seen a significant rise in cross-border M&A activity, and Indian companies have played a crucial role both as acquirers and targets. Inorganic growth strategies like mergers and acquisitions have been championed by both Corporate Managers and Investment Bankers as important engines that help companies to grow fast, enter new markets, expand customer base, and acquire technology and expertise. Traditional wisdom would suggest that M&As should be able to unlock shareholder value through economies of scale and consolidation of assets and human capital. Research, however, shows that approximately 70 per cent of mergers and acquisitions fail to achieve expected results and about 50 per cent actually destroy value. While there are hundreds of reasons for the high failure rates of M&A, ranging from CEO ego satisfaction to incoherent due diligence methodology, a London Business School research points out that most of the key reasons can be termed “soft issues” which is management parlance for Human Resource issues like cultural differences, mismatch of leadership vision, differences in remuneration structuring and HR policies. An acclaimed McKinsey study on mergers stated that the overwhelming reason was “something loosely called culture”. Organisational culture determines and legitimises what sort of behaviour is rewarded in an organisation, and since no two organisational cultures are same, a merger announcement inevitably confuses employees as to how the new entity expects them to behave. Clearly the need of the day then would be clear and timely communication, and defining the cultural identity of the organisation. When it comes to culture, employee communication and other so-called ‘soft issues’, the Human Resource function has a role to play in making an M&A activity successful. Most experts believe that getting HR involved at the very beginning of an M&A decision would help employees deal with the culture shock post merger or acquisition. This edition of The Human Factor seeks to unveil the HR-related reasons for M&A failures, and find ways and means which could help HR managers to successfully nurture a merger or an acquisition.
With this issue, we also proudly introduce Theory i Management, a quarterly supplement to The Human Factor. Theory i Management will carry case studies and case study excerpts focused on the Indian business landscape. Going beyond just Human Resources we intend to carry case studies that cover a cross-section of industries and management functions in this supplement. It has been a long-standing complaint from students, academia and industry professionals that India lacks a good case study repository. With Theory i Management we take our first step towards fulfilling that gap, and we look forward to your support and feedback in making the supplement a success.
