How to Successfully Integrate Talent into Merged and/or Acquired Businesses

By Russell Podgorski
System Manager of Executive Recruitment, Providence Health & Services

By Deirdre Sherwood
Program Manager, Providence Health & Services

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Original Publish Date: July 12, 2016

As health systems across the country strive to reduce costs, improve quality outcomes, enhance the consumer experience, and achieve synergies, it is not surprising that Mergers and Acquisitions (M&As) have increased by 14% from the prior year, representing approximately 1,500 health care mergers in 2015 (Gross, 2016). Many organizations are moving in this direction because they realize that partnerships, collaboration, and integration are essential elements to effective population health management across fragmented delivery systems.

Unfortunately many companies never realize their intended strategic and financial objectives after the M&A contracts are signed (Schweiger, 2002). The failure rates are estimated to be as high as 70% in some cases (Omri, 2011). What is even more troubling is that 85% of major Fortune 500 organizations surveyed indicated that their human resources professionals were underperforming with regards to integrating people into the merged business (CEB, 2006). The primary reason for failure is that companies focus on making the deal without spending enough time on integrating talent (Tetenbaum, 1999). It is no surprise that when key people are not integrated successfully, health care companies, which at their core are service industries, find it difficult to create the value for their consumers and patients. As health care organizations begin the M&A process they must learn to highly prize the retention of their intellectual and caregiving horsepower, and to leverage their human resources departments to realize that vital objective.

This article describes people integration activities that high performing organizations engage in to create more M&A value.

Common M&A Challenges

As a talent acquisition leader in several large health care organizations with work experience and research in the M&A space, I have seen success and failure. There are several reasons for M&A problems. Here are some of them:

Lack of strong leadership - bold and courageous leaders are needed to articulate what success looks like and communicate their vision regarding the M&A.
Underutilized human resources leadership - not bringing the chief human resources officer to the table when M&A discussions are first happening.
Lack of human resource leadership accountability - not appointing a HR integration leader to oversee the people integration work, and not identifying a human resources integration team to support the necessary activities.
Nonexistent retention strategy and plan - not having a HR playbook or work plan to help manage the very complicated integration processes, milestones, and deliverables.
Poor communication - sparse communication to employees that are neither transparent nor meaningful can lead to the resignations of the brightest and most promising employees.
Not focusing on culture – it is critical to ensure that the cultures are managed and integrated in a manner that aligns with the M&A strategy and vision.
Not clearly identifying vital employees – successful companies will strategically select, recruit, and retain top talent.

These issues typically translate to lost revenues, inability to capture synergies, lots of firefighting and rework in the business and HR, severe drops in employee morale in both the acquiring and target companies, reduced productivity, and losses of top talent to competitors.

The 7 Step Roadmap to M&A Success

Best practice organizations who are adept at integrating people and creating more M&A value for their efforts focus on the following seven critical success factors as part of their overall M&A endeavor.

1) Ask Leadership to be Strong and Transparent

M&A success is predicated on strong leadership because leaders set the stage for the rest of the organization. Leaders involved in M&A work need to be bold, courageous, and transparent at all times especially during a M&A. They need to stand behind decisions and accept responsibility when they make mistakes. They need to create an inspiring vision for everyone in the organization. Leadership needs to ensure that the financial and strategic goals of the M&A are communicated to all stakeholders so that people have a common vision and sense of direction, while continually stressing the importance of people and talent retention as prerequisites to successful transitions.

2) Leverage the Chief Human Resources Officer at the Beginning

Mergers fail when the people components are not a major consideration. They also fail if the acquiring company inherits significant HR liabilities. In order to reduce the opportunity for failure, business executives must involve the chief human resources officer at the beginning of the merger discussions (CEB, 2006). Getting the head of HR to the table increases the likelihood of success because they can examine the target company’s compliance and people related risks allowing the acquiring company to incorporate these concepts into the M&A decision making process.

3) Select a Strong HR Integration Leader & Team

Select a strong Integration Leader. The Integration Leader will be responsible for the overall execution of the HR work plan and will ultimately be accountable for project outcomes (CEB, 2006).
Identify a dedicated core team. The Integration Leader must determine needed skillsets for the specific M&A and then obtain adequate resources to achieve goals per the required timeline. Best practice companies include a diverse set of subject matter experts on their teams: project managers, benefits specialist, organizational development, HR business partners, recruiting consultants, and internal communications professionals (CEB, 2006).

4) Utilize a HR Integration Playbook

Successful organizations approach mergers and people integration in a very systematic and methodical manner (Ashkenas et al., 1998). To that end, companies use standardized, but adaptable integration playbooks that contain step by step instructions with tools, templates, checklists, process documentation, and tips to cover each major phase of the M&A from beginning to end. The playbooks should be standardized because many key tasks, goals, and processes are repeated in each M&A, but vary in magnitude and scope depending on the unique features of each M&A. Additionally the owner of the document should be responsible for making sure that the playbook is updated with lessons learned along the way. Playbooks with standard operating protocols vastly increase the chances of success because top performing companies can repeat value-added activities, learn from past experiences, and refine best practices continually. My version of a detailed playbook with people integration activities for each M&A phase can be found at the following Internet link:

http://www.slideshare.net/RussellPodgorski1/people-focused-integration-playbook-48871636

5) Prepare a Communication Plan Early

Communication plans and message content for employees and customers must be developed early. Best practice companies will be ready to initiate communication at a moment’s notice if needed, with a goal of reducing employee stress and fear prior to and during the M&A. The following list reflects the minimum communication points and can be adjusted based on the specific M&A requirements.

Pre-Deal messages. If details about the merger leak, it is imperative that a high-level announcement be on standby. This message content must include general information for employees and factual M&A strategies with no reference to rumors of an impending deal.
Post-Deal messages. To reduce employee confusion, companies must succinctly communicate information about talent implications continually. Best practice companies will tend to over communicate once the deal is closed. Two audiences must be considered to ensure maximum success of the M&A: customers and employees (CEB, 2006).

6) Manage the Cultural Integration

A well performed cultural assessment during the due diligence phase reduce cultural clashes between the two organizations when they come together, and thereby enhance the organization’s ability to achieve the intended strategic goals (CEB, 2006). The cultural assessment must analyze communication processes and styles, leadership philosophies and practices, and performance measurement systems and values (Schweiger, 2002). The cultural assessment of the target company should be compared to the culture of the acquiring organization and the comparative analysis should be used to integrate the cultures of both companies. Kotter and Heskett discovered through their research that companies adept at managing culture realized over 500% more revenue than their competitors (Tetenbaum, 1999).

7) Recruit to Build Organizational Capability

One of the most significantly important factors in any M&A is recruiting and retaining top talent. Employees in both organizations are understandably anxious during this time. Many of them do not know if they will have jobs or not, and some are so talented, they can find jobs anywhere. It is therefore imperative that internal recruiting teams partner with the hiring managers to understand their business, define competencies for positions, assess talent against those competencies, and move as quickly as possible to ensure that the right people are placed in the right positions. Many best practice organizations such as GE Capital complete this work within 30 days of the deal being closed, which is an optimal goal to strive for, ensuring maximum retention of top talent. GE Capital has been successful because they designed a streamlined recruiting process in advance to support all of their M&A engagements (Ashkenas et al., 1998). Successful selection and recruitment of top talent results in reduced year-one turnover, increased employee engagement, improved organizational performance, and reduced agency fees; all of which translate to significant cost savings to the company.

Conclusion

It’s likely mergers and acquisitions in health care will increase as organizations partner with other companies to improve population health. M&A success has been difficult to achieve because the focus has been on the deal and not on people nor the integration activities that follow. The 7 steps outlined in this article will improve the chances of M&A success so that health care organizations can create more value for patients and consumers.

References

Ashkenas, R. N., DeMonaco, L. J., & Francis, S. (1998). Making the deal real: How GE Capital integrates acquisitions [PDF document]. Retrieved October 27, 2013, from http://hbr.org/1998/01/making-the-deal-real-how-ge-capital-integrates-acquisitions/ar/1

CEB. (2006). HR's role in mergers and acquisitions. Arlington, VA, 2-117.

Gooch, K. (2016). 6 forecasts for health care M&A in 2016. Retrieved June 26, 2016, from http://www.beckershospitalreview.com/hospital-transactions-and-valuation/6-forecasts-for-healthcare-m-a-in-2016.html

Omri, M. (2011). The role of speed of integration in the integration effectiveness and mergers & acquisitions success [PDF document]. Retrieved November 8, 2013, from http://ktk.pte.hu/sites/default/files/mellekletek/2014/07/Omri_Morag_disszertacio.pdf

Schweiger, D. M. (2002). M&A integration: A framework for executives and managers. New York, NY: McGraw Hill.

Tetenbaum, T.J. (1999). Beating the odds of merger & acquisition failure: seven key practices that improve the chance for expected integration and synergies. Organizational Dynamics, 28(2), 22 – 35.

Russell Podgorski is the System Manager of Executive Recruitment for Providence Health & Services. He brings over a decade of experience recruiting executives and physicians for multi-billion dollar integrated health care delivery systems. Russell specializes in building and improving executive recruiting programs that exceed national benchmarks and drive value into the business. Mr. Podgorski built solid organizational capabilities for a major health system by leading teams that recruited talent as the company restructured or initiated a M&A strategy. Russell holds a B.A. degree from Columbia College in Columbia, Missouri and a Master of Health Administration degree from St. Joseph’s College in Standish, Maine.

Deirdre Sherwood started her career in telecommunications manufacturing, working for Intel and Motorola. She was a Certified Quality Engineer for many years and her entire career has been dedicated to quality and process improvement. Sherwood has spent the last 15 years in healthcare, working for both health plans and healthcare delivery organizations. Most recently, she has been working for Providence Health & Services as a Program Manager. Sherwood earned a BS degree in Industrial Engineering from New Mexico State University and a Master of Health Administration from St. Joseph’s College in Standish, Maine.