Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
Using HR metrics to make mergers and acquisitions a success
Article Type: Metrics From: Strategic HR Review, Volume 7, Issue 4
The latest ideas on how to approach measurement and evaluation of HR activities
The use of mergers and acquisitions (M&A) as a means of realizing strategic goals has grown in importance over recent decades. The track record of M&A deals is mixed, with most studies putting the failure rate at between 50 and 75 percent. Research shows that many of the decisive factors leading to the success or failure of deals concern people issues. At first glance it would seem that many of these people issues cannot be clearly identified, quantified and measured. This impression, however, is misleading.
HR metrics can support any M&A deal from the very early stage to the final phase, and help lead to its success. HR metrics quantify various aspects of people issues. They add significant value because they create awareness and show where the real issues are, what should be looked into in detail, what needs to be prepared for integration, and – last but not least – what should be monitored during the integration process.
The use of HR metrics in the process
If we take a look at a standardized M&A process (see Figure 1), in the first phase HR metrics can help in the search for suitable acquisition targets or merger partners by identifying potential companies and assessing their fit with the M&A strategy and its goals. Later in the due diligence phase, HR metrics can help identify potential risks and show differences with regard to efficiency and productivity that constitute upside potential and things that need to, or can be improved. Metrics will also be useful in terms of translating the risks and opportunities into the cash flows that determine the company valuation and hence the purchase price. They clearly demonstrate the fits and misfits between two companies.
At that early stage before the deal, HR metrics are not necessarily deal breakers, but can indicate what to watch, what to study in more depth and where to focus action plans for later in the process. The findings from due diligence will be a good starting point for integration planning and execution. Companies can prepare how to deal with the differences, set goals to be realized, formulate actions and monitor integration progress and success. Finally, if an M&A audit is carried out, HR metrics can help in understanding what has worked and what has not, providing the organization with valuable information that can be applied to future M&A deals.
Access to data and level of HR metrics
While HR metrics can be used in the early stage of a transaction, data availability in this phase is usually scarce. Later on in the M&A process there is access to more data and management HR metrics can be used. In the integration phase, even more detailed data is available to take advantage of operational HR metrics. The availability of data will be a challenge throughout the whole M&A process. Added to this, later on in the integration phase it is a challenge to obtain the necessary data within a short enough time span to be useful in monitoring the integration progress. To arrive at useful conclusions, all metrics have not only to be analyzed on a standalone basis for the potential target, but in relation to the acquiring company and the general performance of the industry or important competitors. For example, Saratoga by PricewaterhouseCoopers, a global human capital measurement and benchmarking service, provides benchmarking data covering various aspects for around 15,000 companies and organizations.
Examples of HR metrics at various levels
A number of HR metrics have proved to be useful in ensuring the success of M&A deals. What HR metrics will be used depends, of course, on the ultimate goal of each deal and its industry-specific setting. Strategic HR metrics reflect the broad organizational strategy and performance and measures at this level typically focus on financial metrics. Examples of strategic HR metrics include sales, profits, salary and costs per employee. Management HR metrics capture movements and changes after M&A deals and their implementation. Valuable management HR metrics include functional costs per full time employee, headcounts per function and executive stability. Operational HR metrics are designed to drive and track performance improvement at a functional or process level. Such metrics will include key performance indicators for line managers, function heads and even employee groups. They can be grouped as a portfolio of process, activity and efficiency measures.
Strategic, management and operational HR metrics quantify various key aspects of people issues and are supportive when it comes to mastering M&A deals from search to post-merger integration. The use of HR metrics helps capture and maximize the value of transactions.
Christopher KummerChristopher Kummer is based at PricewaterhouseCoopers.
About the author
Christopher Kummer leads the Human Resource Transaction Services Switzerland practice at PricewaterhouseCoopers. Christopher Kummer can be contacted at: firstname.lastname@example.org