Among the many factors that impact the success of an M&A or divestiture transaction, organizational design, and talent selection and retention are key.
In fact, organizational structure, and talent selection and retention directly impact deal value through M&A cost and revenue synergy goals as well as ability to drive innovation. Yet during a deal, many companies fail to connect structure to long-term strategy and often take a short-term view at best, or completely ignore it at worst.
Considering the most common human capital pitfalls in M&A, several relate to organizational design, including:
There are several suggested practices that can help organizations overcome these challenges.
01
Significant effort is devoted to preparing for day one. Leading acquirers, however, start the organizational design conversation much earlier, often as early as target evaluation. During due diligence, acquirers can consider points such as:
This head start allows acquirers to identify efficiency and effectiveness concerns at the onset, which plays a critical role in deal success.
02
There is always a tradeoff in M&A between scenario planning and meeting fast-paced deadlines. While benchmarking is valuable, each organization is unique in what talent they need and how best to organize that talent to achieve deal value.
An evolving practice is to develop a stabilization-based organizational design for the initial integration stage and identify further synergy savings and transformation opportunities in later stages. Developing an iterative plan and road map, and addressing initial practicalities driven by customer demands or business disruption mitigation allows for flexibility. Such planning requires clarifying the operating model early to narrow down the range of possibilities to explore.
By starting discussions early and taking an iterative approach, leading acquirers reduce retention and productivity risk by providing role clarity and assuring top talent they will have a role in the new organization.
03
It is important to quickly identify any synergy assumptions. The next challenge is tracking against value, which is often diluted as responsibility shifts into the business. It is important for the deal team and HR to set clear targets and ensure accountability for achievement. Involving management of the business and function in the organizational design earlier creates commitment and helps retain institutional knowledge.
04
Organizational design is much broader than structure, and many acquirers struggle with how to get this right. Technology support can enable an integrated view of both organizational design and cost in real time.
Organizational design is much broader than structure, and many acquirers struggle with how to get this right. Technology support can enable an integrated view of both organizational design and cost in real time.
In terms of organizational design work in M&A, there are two key challenges: having the right data, and the structure on paper (or in a system), versus the reality of the work employees truly perform. Left unattended, this disconnect increases risk, cost and complexity.
Technology options continue to evolve, and new dynamic tools1 allow clients to quickly develop an integrated design and cost view, track actuals and forecast organizational change. Given that many organizations contemplate multiple options for future organizational design, enhanced modeling capabilities beyond simple spreadsheets are a must for serial acquirers.
05
Amid the pandemic, many clients are reimagining organizational models and values outside the context of M&A. Some unique M&A considerations include challenges and opportunities associated with hybrid or remote work, pandemic preparedness, digitization and cybersecurity. Environmental, social governance (ESG) and diversity, equity and inclusion (DEI) initiatives have also come to the forefront, leading employers to place greater emphasis on employee experience and intentionality of culture throughout all phases of the deal life cycle.
Many of the organizational design principles generally also apply in M&A situations but must be rightsized to accommodate accelerated timelines (Figure 1).
| Stage | Success factors |
|---|---|
| Foundation | Understand the respective current states, set up project for success and establish synergy and other targets. This should leverage joint design teams and include alignment on financial targets by function and leader. A dynamic tool is a best practice to establish a data foundation, including identifying where data are stored and clear data governance processes. |
| Opportunity identification | Identify opportunities for improvement/integration, with a focus on deal rationale and stabilization. |
| Blueprint | Establish a future-state operating and governance model in context of specific design principles. |
| Design | Develop the detailed components of the chosen organizational model led by business units or functions. HR and external advisors can help facilitate. |
| Implementation | Develop a road map and timeline of changes with focus on employee experience. Align on talent selection approach and tools, confirm staffing selection process, and invest in change and communication. |
Process and technology agility will enable acquirers to differentiate and safeguard against hidden cost, retention issues and culture clash that will ultimately hinder deal success. It is best to start the conversation on organizational design early in the process to provide the greatest opportunity for success.
1 WTW has a partnership with OrgVue, a SaaS based organization design modelling and analytics tool.
