A new report by the CIPD into restructuring reveals that people issues come
way down the list of priorities.Duncan Brown looks at the keys to successful
reorganisation
With the economic recovery gathering pace, there’s been a marked pickup in
corporate restructuring activity. Flicking through the business press provides
dozens of examples: the merger of Sanofi and Aventis; Levi’s selling Dockers;
Londis facing a recommended and a hostile offer; further internal
reorganisation at the Post Office; and now there’s integration of
Granada/Carlton in the new ITV, and Safeway into William Morrison.
The City financiers must be rubbing their hands together, with the latest
average earnings figures jumping because of the increases in bonus payments.
Let the good times roll.
But good for whom? A string of studies suggest that the disappointments of
senior executives removed in acquired firms are often experienced by a far
wider population, and without compensation as large as Safeway’s Criado-Perez’s
financial package.
Scarred landscapes
One North American study, for example, found that fewer than one-third of
takeovers produced positive returns for shareholders. And the landscape on this
side of the Atlantic is similarly scarred, as shareholders in Corus, Rover and
Railtrack will attest.
The Chartered Institute of Personnel and Development’s (CIPD) project,
Reorganising for Success, has involved more than 800 UK chief executives and
directors across all sectors, with follow-up analysis in major organisations
such as Unilever and the NHS.
These organisations are carrying out a major restructuring, such as an
acquisition or divestment every three years, and smaller scale, internal
reorganisation is taking place virtually continuously. Yet executives admit
that a majority of these changes are failing to achieve their intended
objectives, in terms of financial returns and internal effectiveness.
And the primary causes of failure revealed by all of these studies are the
people-related factors: over-ambitious senior executives, lack of a clear
strategy or attention to implementation, poor project management, loss of key
talent or market focus, high levels of internal conflict, duplication of
activities, and so on.
The regrettably common approach, it appears, is for a narrow group of senior
executives to come up with the change rationale and blueprint, which is
(ironically) heavily focused on financial considerations, and then rolled out
by uninvolved managers across uncomprehending, demotivated employees, with the
HR department often left to pick up the pieces.
So how can HR professionals address a lamentable record of business
failures? Our research draws out four key lessons.
First, ensure your leadership team has the expertise to plan and implement
an acquisition or similar major change. It needs to put in place and deliver a
change strategy that makes realistic estimates of the likely risks, financial
returns, costs, and timescales. Obvious maybe, but only a quarter of the
organisations we studied had fully-trained project managers overseeing these
reorganisations.
External benchmarking
In the CIPD study, the quality of leadership has frequently been mentioned
both as a barrier and enabler to successful reorganisation. More than half the
participants will in future make greater use of external benchmarking and
advisers.
Second, take a comprehensive approach, integrating related changes in
organisation structure, business processes and systems, and, in particular,
paying attention to the HR issues and processes at all stages. Ask these key
questions in mergers:
– At the planning and due diligence stages, what is the cultural fit between
the two organisations, what is the people strategy for the new organisation,
what is the impact of employment legislation and what are the human risks, such
as loss of key staff?
– When the deal is being done and delivered, what are the new roles, and
what merit-based selection process will we use to fill them, how will employee
relations and career structures, appraisal and reward systems need to change,
what are staff thinking, and how can we build a sense of shared purpose and
support?
The HR function needs to be fully involved throughout this process to ensure
these issues are effectively addressed – another factor that correlates with
the successful reorganisations in our research. Only a third of firms felt they
had given enough attention to issues such as the effects on pay and career
structures, while 60 per cent planned to give them greater prominence in the
future. Research specifically on international acquisitions demonstrates that
HR professionals are involved earlier and more extensively in successful
tie-ups.
Finally, the biggest lesson learnt was to engage in a much more extensive
process of employee communication and engagement, with less than a third
letting employees influence the shape and direction of the changes. Yet when
GlaxoWellcome and SmithKlineBeecham merged, dozens of teams staffed from both
companies worked on key aspects of the new organisation, which hugely
facilitated the integration process.
The work of Safeway’s HR department in the run-up to the takeover by
Morrisons included enhanced training programmes, retention payments and
extensive communications involving directors’ open briefing sessions and
regular ‘colleague council’ meetings.
Financial returns
So with acquisitions and similar major reorganisations, UK companies need to
pay much greater attention to the people issues, in order to build the
capability to manage such changes, and the employee commitment required for the
delivery of the desired financial returns.
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The message from all the research and experience is: do it properly, in a
people-focused way, or don’t do it at all. And as journalist Richard Donkin
says in summarising our findings so far: "There is a strong case to be
made for involving HR expertise at the most senior levels of strategic and
organisational change."
Duncan Brown is assistant director-general at the CIPD
