By Melanie Holly Pasch
July 9, 2019
An estimated 70-90% of all M&As fail to achieve their anticipated strategic and financial objectives. “This rate of failure is often attributed to various HR-related factors, such as incompatible cultures, management styles, poor motivation, loss of key talent, lack of communication, diminished trust and uncertainty of long-term goals,” writes the Society for Human Resource Management.
Human resource management makes or breaks mergers and acquisitions and employee retention is likely the most important piece of the puzzle. How do companies keep employees from leaving after M&As, taking vital intellectual capital and client relationships with them?
This article focuses on how harnessing Artificial Intelligence (AI) in the right way can transform the way M&As are carried out and significantly increase the success rate of reaching strategic and financial objectives. Specifically, this piece is an exploration of how AI can smartly identify which employees should be retained, how to retain them, and how to develop a cohesive workforce that continues to develop and maximize productivity and happiness.
How to identify top employees
Imagine two baseball teams merging into one. Without knowing each player’s strengths and weaknesses, how is the coach supposed to put together winning plays or even know which position is best suited for each player? Visibility is the secret to managing a winning team. The same is true for companies.
AI can process employee profiles by understanding concrete skills, experiences, and achievements rather than simply looking at rank. All employees should undergo performance analysis to measure progress and assess capabilities. People really are a company’s greatest asset and AI can help maximize output by unlocking hidden capacity.
At present, most companies undergo lengthy and expensive processes of assessing existing employees. As with anything done by humans, this poses a risk to error and bias. AI can help expedite these processes and speeds previously unimagined and provide decision makers with a level of visibility on their employees’ skills, experiences, and interests that cannot exist without it.
In addition to skills and professional experiences, accomplishments must be the key in identifying crucial employees. When companies merge or a company is acquired, leadership will usually discover that many have been promoted for reasons beyond accomplishment or talent, namely due to loyalty to certain managers or tenure rather than concrete accomplishments and merit. This corporate restructuring is a great opportunity to look at employees’ merits and accomplishments and end bad hiring and promoting practices.
Retaining the right talent
Retention bonuses are a good way to buy time, but are not a solution unto themselves for retaining key talent after M&As.
There is also a downside to retention bonuses, that once rumors leak of their existence, those who do not receive a retention bonus tend to conclude, rather logically, that they are simply not valued.
Retention bonuses aren’t enough
Numerous studies show that money is not a true motivator for employee engagement and performance. A recent article puts it nicely: “Money is obviously important, but a main component to retention is keeping your top talent happy. And happiness is still one of those things money can’t buy.”
One of the most comprehensive studies on money as a means of employee motivation is a meta-analysis by Tim Judge and colleagues, which combined 120 years of research to synthesize the findings from 92 quantitative studies including a dataset of over 15,000 individuals and 115 correlation coefficients.
As Tomas Chamorro-Premuzic writes in Harvard Business Review, “the results indicate that the association between salary and job satisfaction is very weak. The reported correlation (r = .14) indicates that there is less than 2% overlap between pay and job satisfaction levels. Furthermore, the correlation between pay and pay satisfaction was only marginally higher (r = .22 or 4.8% overlap), indicating that people’s satisfaction with their salary is mostly independent of their actual salary.”
A cross-cultural comparison revealed that these finds are more or less the same across countries, between the US, India, Australia, Britain, and Taiwan for example.
These finds are in line with Gallup’s engagement research, which found that there was no significant difference in employee engagement by pay level. This research was based on 1.4 million employees from 192 organizations in 49 industries in 34 countries.
Tomas Chamorro-Premuzic concludes: “if we want an engaged workforce, money is clearly not the answer. In fact, if we want employees to be happy with their pay, money is not the answer. In a nutshell: money does not buy engagement.”
Retention bonuses provide money in the hopes of keeping employees around, but smart companies don’t just want to keep employees around; they want to keep them engaged and performing their best at work. Retention bonuses may buy companies some time after M&As, but they won’t increase or even maintain levels of productivity and creativity on staff.
While more than two-thirds of organisations indicated they retained four out of every five employees who signed a retention agreement over the course of the full retention period, less than half retained that same percentage one year after the period expired, Craig Donaldson reports.
Despite this, the Society for Human Resource Management found that 92% of successful acquirers use retention bonuses, 90% of buyers user time-based “pay to stay” provisions, usually lasting 6 months to 1 year after the change.
“In today’s climate, when companies are often buying skills or relying on an acquisitions staff to meet critical sales or market share goals, the ability to retain the right people can be a make-or-break element in the deal,” said Mary Cianni, global leader of M&A services at Towers Watson. “Companies and shareholders increasingly recognize that achieving a deal’s strategic goals depends on having the right people, with the right skills, in the right roles.”
This all points to the need to go beyond retention bonuses and actually identify matches between employees’ skills, experiences, and interests and the needs of a company in transition. AI can do just that. According to IBM Smarter Workforce Institute’s Employee Experience Index, 92% of HR respondents expect AI solutions to deliver a better match between skills and jobs, and 87% see AI providing employees with increased visibility of opportunities.
Retention strategies must start early
All retention strategies must begin before the merger or acquisition is final. This gets in front of potential issues before they arise and beat the threat of rumors that would work against retention efforts.
Almost three-fourths of acquirers that succeed in holding on to key talent determine during the due diligence stage or during negotiations which employees they want to ask to sign retention agreements. Nearly 6 in 10 acquirers less successful in retaining talent don’t ask employees to sign agreements until after the M&A transaction closes. The point is that the earlier a company sets retention targets and puts them into action, the better.
As elaborated above, retention bonuses simply aren’t enough. Beyond bonuses, companies must build the company culture and internal talent mobility structure to retain talented people in today’s competitive market. This starts before M&As are finalized, but is increasingly important in the critical aftermath of an M&A.
AI-based talent mobility platforms can be the perfect tool to gain true visibility on employees’ skills, experiences, and even ambitions and interests and empower employees to find the right place for themselves in growing companies. Instead of just hiring a committee to restructure the company from above, why not empower employees to find the best place personalized for their skill set and career ambitions inside companies?
It’s incredible how much more productive and impactful knowledge workers are when they feel empowered and that they are developing on a career path. Even with no financial incentives, employees want to move within the company to further their career development. Harvard Business Review’s finding agree: 9 out of 10 employees say they would make a lateral career move with no financial incentive. Not only are employees willing to take on these shifts, but Deloitte finds that on-the-job development opportunities such as lateral moves and stretch assignments can increase engagement by up to 30%.
Developing a cohesive workforce
After M&As creating a cohesive workforce is a major challenge. The best way to start is to build an open company culture. Transparent communication from top leadership is imperative as employees have an increased desire to be in-the-know after times of uncertainty and change. Another kind of openness is often overlooked, but tremendously important. This is the openness between teams and departments within a company. An open company culture means that employees on different teams and in very different functions or geographies feel comfortable sharing with one another both in communication and talent. This, of course, is only possible with the revolutionary visibility only AI can provide.
The best way to create an inclusive company culture of empowered individuals working together is to transform how they form human connects between themselves both personally and professionally. Harnessing AI in the form of an internal talent marketplace matching employees personally with part-time projects opportunities, job swaps, and mentorships can create these connections across geographies, functions, and departments. The same platforms that employees use for lateral career moves within the company can be used to develop careers while forging meaningful connections across organizations.
AI can provide the kind of personalized attention previously only available with a human career coach. Employees will feel invested in and will reward the company with increased engagement, output, and loyalty. Millennials are now the largest generation in the workforce and prove time and time again that career development at work is a top priority for them.
As Ashley Goldsmith Chief People Officer at Workday wrote in Forbes, “Millennials want experiences. They see opportunities everywhere and they want optionality—the ability to move in a variety of directions and pursue different learning opportunities. Almost 9 in 10 millennials say development is important at work, Gallup says.”
The values of the generations of the future are clear. If companies want to retain workers and keep them engaged and productive, they need to provide diverse career development experiences on the job. While times surrounding M&As might not seem like the time to dedicate resources to employee career development, these times are actually the most important time to show employees why they have a future at the company.
How companies treat their employees during the crucial time before and after M&A affects how employees and investors will perceive the company. A study by the consultancy Great Place to Work of 400,000 American workers revealed when people believe internal promotions are effectively managed they are twice as likely to put in extra effort at work and five times more likely to believe their bosses act with integrity, Charles Orton-Jones writes in Raconteur. “A clear policy on internal promotions also correlates with share price returns at triple the market average, and staff turnover half that of rivals,” writes Cath Everett.
Human resource management can steer a merger or acquisition to success or demise. AI offers tremendous benefits, specifically in the form of an internal talent marketplace matching employees with personalized career moves, part-time projects, job swaps, and mentorships within the company. M&As test the strength of organizations so it’s more important than ever for companies to show their employees they value them by offering this technological career counseling of the future. Investing in employees’ career development is the best retention strategy for today’s post-modern workforce and keeping top employees performing at their best is the best strategy for M&A success.
InnerMobility by Gloat is an AI-powered internal talent marketplace connecting employees with personalized career development opportunities including new positions, part-time projects, job swaps, and mentorships. It empowers employees to take control of their own careers and find their maximum productivity bliss within their current company.