Decades of industry research on mergers and acquisitions (M&As) have highlighted the exact same bottom-line finding and conclusion: inadequate attention to “people issues” usually results in M&As underperforming - or, even worse, failing.
In the last decade or so, this broad recognition has led to the emergence of a discipline, body of knowledge, and expertise within the HR profession that is now routinely called “HR-M&A.” Just one indication that HR-M&A perspectives and considerations are white hot: a quick google search on this topic yields 24 million results.
There are many reasons behind failed or underperforming M&As, but some of the most important factors include extended dips in employee productivity while everything settles, similar disruptions with customers and business partners, and enterprise value getting eroded from losing key employees that possess crucial institutional and industry knowledge. All these issues demand proper attention to mitigate risk and compress the period of de-stabilization.
Effective HR-M&A Starts with Onboarding
A critical area of HR that justifiably gets a lot of attention - particularly from organizations taking steps to optimize M&A outcomes - relates to onboarding newly acquired or merged employees. This involves onboarding new employees from acquired businesses into the newly defined organization. It may also encompass re-onboarding existing employees into new roles or converting independent contractors to employee status to avoid misclassification penalties. As new and existing employees may be located (or relocated) across the globe, the organization must undertake the professional handling of all key legal, administrative, and compliance matters in line with local regulations.
In the context of HR-M&A, however, getting the legal aspects right isn’t the only goal. We’re also talking about achieving a high level of efficacy and reliability within the onboarding process. This enables organizations to spend more time resolving or avoiding people issues that can undermine M&A outcomes, including ROI expectations.
An HR-oriented approach to M&As includes all necessary communications to inform the workforce of changes that affect them – and in very targeted, if not personalized ways. For example, it may involve assessing the level of readiness and receptivity to change, making strategic organizational changes, harmonizing compensation practices and benefits plans, reskilling where appropriate, and updating HR policies. All these activities are crucial to the success of integrating new businesses.
Modern HR Service Delivery Models Are Needed
For the above-highlighted reasons, many HR and business leaders engaged in industry consolidation strategies and/or more garden-variety M&A activities are now looking for service offerings that can make the onboarding transition more efficient.
One such offering is called an Employer of Record (EOR). EORs started getting major attention a few years ago from HR teams seeking to broaden their organization’s global footprint quickly without getting slowed down by a morass of legal and compliance issues. The first generation of EORs was generally observed to do what they were intended to do, namely onboard and employ international workers in compliance with local laws so that their clients didn’t have to deal with all the associated concerns and issues. That said, there was also noticeable room for improvement.
For high-performing, competitive companies, EORs need to provide more than simply employing talent on their behalf; they must also facilitate an excellent experience for the employees and HR teams alike. In the age of automation, both HR ops professionals and employees expect solutions that are driven by technology. They don't want long email chains or unnecessary phone calls; they want a smooth, semi-automated process that takes place in one platform or app. A place where they can keep tabs on onboarding progress, required actions, and essential documents. At the same time, they don't want to be left high and dry when technology alone just isn't enough. In other words, modern EOR solutions need to combine automation with a human touch. That's what's needed for the optimal HR-M&A experience.
But EORs aren’t the perfect answer for all situations. For example, if a company has already established a legal entity in the employee’s base country, there’s no need to engage with an Employer of Record there. The company can simply employ the worker directly through the entity. However, they may still want to outsource certain HR functions like payroll for time-saving purposes or other reasons. Here the notion of alternative flavors or models materially comes into focus, including the Professional Employer Organization (PEO) approach. The biggest difference is that PEOs require you to own a local entity and enter into a co-employment arrangement, while an EOR allows you to hire in many countries without an entity and without a co-employment status.
Of note, while the PEO strategic option is offered by a subset of HCM/payroll providers that offer global or multi-country payroll capabilities, these same global payroll vendors might not be willing or able to deliver and support any combination of the PEO and EOR models. Moreover, they may not be willing or able to cost-effectively start with one model on behalf of a customer and transition to another as and when needed. In short, the agility of the provider is of paramount importance.
Organizational Agility & High-quality Employee Experience Are Essential
Organizations of all sizes and across all sectors are increasingly being guided by the same elements when they partner with HR vendors - certainly when it comes to global payroll and employment solutions. Arguably at the top of this list are the notions of elevating both organizational agility and the employee experience.
The former is about speed and the ability to pivot or even anticipate when and how to pivot. Organizations firmly planted in the M&A arena, or opportunistically finding themselves in it, certainly care about these capabilities, specifically to mitigate all the potential “people risks” and realize the accretive value projected. The best way to achieve this while accommodating whatever combination of HR models is needed and still maintaining a superior worker or employee experience is to partner with a vendor that demonstrates the unique set of competencies outlined herein. This, of course, requires cutting-edge technology and a set of optimized processes designed to be nimble, changeable, and human-centered. Without that, you lose the “HR” in HR-M&A and, consequently, your ability to leverage your people for true competitive advantage in the context of game-changing events.
About the Author
Steve Goldberg's 30-plus-year career on all sides of HR process and technology includes HR exec roles on three continents, serving as HCM product strategy leader and spokesperson at PeopleSoft, and co-founding boutique Recruiting Tech and Change Management firms. Steve’s uniquely diverse perspectives have been leveraged by both HCM solution vendors and corporate HR teams and in practice leader roles at Bersin and Ventana Research. He holds an MBA in HR, is widely published, and is a feature speaker around the globe. He’s been recognized as a Top 100 HRTech Influencer. Steve can be reached at SGoldberg@HRTechAdvisorySvcs.com.
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