The Danger of Disregarding Your Workforce in M&A

When major American food manufacturer Kraft Foods purchased Cadbury, a British multinational confectionery company, in 2010, roughly 165 senior staff members from Cadbury left the company shortly after the deal closed. Some, like John Bradley, former Cadbury World executive, attribute the departures to Kraft’s negligence for Cadbury’s strong brand heritage.

“Kraft [seemed] not to care one iota about the history and tradition of Cadbury,” Bradley said. "They think they have just bought a series of brand names that they are going to integrate in their business just like they did Ritz Crackers and Toblerone…they seem to not understand what they bought.”[1]

Bradley was referring to Cadbury’s workforce. It was the missing piece in Kraft’s strategy, and it is not uncommon for business leaders to underestimate, or disregard entirely, the value of workforce and culture during a merger or acquisition. But in today’s environment – one where employees are either the catalyst or inhibitor for organizational transformation – it is no longer an option. The role of workforce must be top of mind from start to finish to position your transaction for success.

To design a transaction strategy that helps you achieve your business goals, consider the following principles:

  • Leaders must have a clear vision for overcoming cultural incompatibilities or differences in ways of working that might exist before attempting to unite workforces under one roof.
  • In a true merger, leaders must be intentional about understanding the independent cultures and work to preserve valued aspects of each to design a combined culture that is even stronger.
  • When approaching a transaction, leaders must understand that workforce needs are intricately connected to customer needs and operational considerations.

Treat the workforce as a fundamental component of your deal. Deal teams tend to focus on elements such as distribution, IP, and technology when assessing candidates for a merger or acquisition. They often fail to recognize the workforce as a key asset that could make or break their transaction. They do not fully understand what they are considering buying: an attractive proposition based on the people. This ultimately causes leaders to devalue the business they are assessing. To avoid this common pitfall, it’s critical to think about legacy cultures and other key “people dimensions” – such as skills, capabilities, organizational structure, and compensation – early on and with just as much significance as you would the books or technology. These aspects of workforce and culture should be considered as early as selecting criteria and conducting due diligence. Once you have narrowed down a list of target companies that meet your strategic business objectives, aim to select a candidate whose workforce fits well with your own. By making it a priority to choose a compatible culture, you will avoid friction and disruption to operations down the line. If you must select a company with an incompatible culture, it’s imperative to have a plan in place for overcoming the anticipated challenges to ways of working.

Design your culture with purpose and with your people. When executing a merger, be deliberate about understanding each independent culture and make it a priority to preserve the best of both to create high performing teams. This will help you secure employee buy-in at all levels of your organization, which 61 percent of companies we surveyed cite as a challenge in recent transformation initiatives, such as M&A. Be open to change and purposefully design your combined culture around the strengths and capabilities that each organization brings to the table. This process should be a collaborative one. Based on our research, 93 percent of leaders say that involving employees in co-creating change leads to better outcomes. To do this effectively, it helps to connect change managers with deal integration teams early in the transaction lifecycle to support the development and implementation of change management strategies based on new ways of working in your combined culture. In fact, integration teams can provide a helpful view into how individuals from different cultures come together. Testing integration strategies on a small scale among a select group will allow you to observe obstacles that might arise as individuals collaborate and determine best practices before undertaking integration at a firmwide level.

Take a holistic view of your transaction. Transactions highlight the important connection between workforce, operations, and customers. Organizations that put people at the heart of their M&A strategy unlock value from a business and customer perspective in the form of greater efficiency, enhanced customer experience, and improved profitability. The airline industry has historically struggled with this concept. Take the 2010 merger between Continental Airlines and United Airlines, which “resulted in a widespread lack of trust between the airline’s management and its workers.”[2] Leadership failed to resolve labor issues before closing the deal and did not integrate the workforces or invest in designing a combined culture. This spoiled relations with employees, disrupted operations, and ultimately, led to angry passengers. In your next M&A transaction, consider and prioritize your workforce as one integral piece of a structural transformation strategy that also encompasses value in the form of customer satisfaction, operational efficiency, risk mitigation, enhanced organizational capability, and more. Consider adjusting your emphasis on these value drivers as your business progresses through the integration. This can take the form of a specific workstream, a leader dedicated to maximizing the value inherent in the workforce integration, or a collection of initiatives designed to maximize all the value levers connected to workforce. An approach that is both holistic and adaptive will help maximize the impact of the transaction, unique to your organization’s shared vision and goals.

The ability to execute a successful merger that achieves your business objectives means your workforce must be on board. To protect the value of your transaction, prioritize the workforce in your M&A strategy from the very beginning and intentionally design your culture with input from those who it will impact the most: your people. Importantly, remember that your operations and customers’ experience with your brand are a direct byproduct of your workforce strategy connection. When handled with care, your employees can serve as your greatest asset for transformation.