If it isn’t broken, don’t fix it. Or so the old saying goes.
In the break-neck world of mergers, acquisitions, and consolidations in life sciences and health care, businesses are often bought or absorbed not because they are broken but because they are thriving and leaving their mark in a key targeted segment of the marketplace.
But even under the best of circumstances, the combined enterprise will likely involve some degree of recalibration, or “fixing.” It could be the adoption of a different business model, new commercial channels, transition to a new culture, or the closing of offices and facilities.
This is especially true in the area of talent management and deployment. The consolidation of businesses through mergers can be a human capital challenge. And that’s putting it lightly.
Selecting the right talent for the right roles, with the capabilities critical for an effective combined enterprise, is often the number one concern for human resource (HR) leaders. Typically, their priority is to secure the best talent, engage the hearts and minds of all employees, steer the transaction toward the most efficient results and holistically manage the development of a new organization.
To start, HR leaders should perform a rapid, enterprise-wide assessment of go-forward talent needs (skills, number, and geographic location), the cost synergies (read: headcount reductions) needed to make the transaction accretive.
How HR leaders manage the enterprise through the transition can strongly impact whether an M&A transaction will succeed or fail. Harmonizing cultural differences between legacy companies and maintaining cultural and workplace balance is an important objective, but strategic priorities and market variables usually decide how easily it can be attained.
With a merger of equals—the combination of two companies with complementary market strengths, there are often certain similarities already in place, for example: workforce size and scope, organizational capabilities, a sizeable number of offices and facilities across the two enterprises and well-established HR systems, programs and processes.
But big challenges can remain. For example, the announced plan for Anthem to acquire Cigna and Aetna’s deal to buy Humana are major, potentially transformative industry changes. The impact on how human capital is budgeted, managed and deployed may be transformative, and may be a significant challenge for organizations and their HR leadership.
When a mature health care or pharma giant buys a smaller, more entrepreneurial company – perhaps a biotech company with a reputation of throwing out the conventional playbooks, taking calculated risks or using novel business methods – it could be a different story. The more established organization may have a more hierarchical structure, history and organizational culture that make it resistant to change.
One consideration is the spirit and innovative value of the smaller company that’s just been purchased. Some acquirers give their new affiliates a high level of independence, of the kind that made them successful—and an M&A target—in the first place. But others may try to bring the new business into the fold, which can be a difficult process, both operationally and culturally.
We’ve seen these conflicts with a growing number of our clients, as the pace of consolidation and convergence quickens, especially among organizations in sectors that traditionally operated at arm’s length with each other, such as hospital systems acquiring health plans.
There are a number of strategies that HR leaders should consider to leverage efficiencies and help minimize potential conflicts. Here are a few:
First, achieve a comprehensive understanding of how the M&A transaction will be accretive to the business. Based on the results of this assessment, HR leaders should prioritize and align their enterprise enablement efforts (i.e., organization design, talent retention, culture integration, change management) with the levers for value creation.
Second, undergo an exhaustive internal talent review and decide how it will be organized once the merger or consolidation takes root. Determine the training and recruitment capabilities that are in place and the way talent is evaluated, recognized and rewarded. Considering the talent the combined enterprise needs, take the leading practices of both organizations and build a foundation that helps set up the organization for success.
Third, do a full assessment of competing cultures, determine the values the organizations share and develop a tailored set of culture events that are both business-intelligent and accommodating to the desired future culture of the combined enterprise. Even when a smaller organization becomes part of a bigger enterprise, its specific cultural needs should be taken into account.
Fourth, determine how to navigate potential issues or bottlenecks that could complicate workforce efficiency and talent retention efforts. Hospital acquisitions, for example, usually involve negotiations with labor unions that can affect the transition. By comparison, a big pharma operation that scoops up a young and emerging biotech may be far less likely to have to concern itself with labor issues, since far fewer biotech workers tend to be unionized.
The fight for talent isn’t just a slogan, or a secondary consideration. It should be a core value of any enterprise, whether legacy or consolidated.