In 2021, 38% of US tech business acquisitions were outside of the tech sector. With more and more legacy institutions eyeing to buy tech companies, the rate of digital transformation across non-tech industries will continue to climb. PwC Leaders Suneet Dua and Gregg Nahass explain how HR leaders can retain talent after M&A.
Mergers and acquisitions (M&A) and workforce reorganization can create a wealth of opportunities for companies seeking rapid growth, transformation, and market expansion. In fact, 47% of executivesOpens a new window say pursuing corporate M&A, joint ventures and alliances is their top growth driver in 2022, as it provides companies with the resources to address their biggest business challenges.
The M&A landscape often challenges human capital and talent strategists to find ways to improve employee experience and acquire and retain top talent. In addition, company integration can create a wide array of workforce culture issues, such as developing trust in the new leadership and making connections with new coworkers and departments.
As a result, retaining employees during integration is a significant challenge for businesses since only 10% of executivesOpens a new window reported significant success in retention, down drastically from 56% in 2010. Conversely, 50% of executives reported significant success in retaining key employees when they focused on organizational culture.
As more legacy institutions look to â€œfuture-proofâ€ their organizations through digital transformation, they may consider acquiring technology companies to fill the gaps.Â
This is crucial since many culture-related factors are central to the company’s success and a key reason they attract their employees.
This is why retaining a strong culture built on communication and trust is key to achieving deal objectives and supporting enterprise-wide transformation in companies undergoing tech M&A transitions. HR professionals within companies experiencing such transitions might achieve greater retention by employing the following three principles.
Expanding Diligence to Culture
Accordingly, tech employees are often highly committed to their organization’s values and vision for a better future. This strong adherence to a specific company culture can challenge M&A integration. 60%Opens a new window of leaders cited culture integration as the most important factor for long-term success, above deal strategy and operating model. Consider this: acquiring the wrong company but integrating cultures seamlessly can result in better long-term success than acquiring the right company and not integrating both cultures successfully.Â
An integration plan must be implemented early on to ensure that the culture of the two brands can coexist. To accomplish this, employee surveys and analytic platformsOpens a new window can provide an early indication of potential culture pitfalls, enabling organizations to draw insights that help identify blind spots and improvement opportunities.
Pay for Performance
Tech firms are often acquired because their products and key talent are seen as innovative or effective in solving new problems in the digital arena. However, at many tech startups, this results from deep employee investment tied to their equity stake in the company and the ability to profit directly from its success. However, these benefits could disappear when tech firms merge or are acquired by another organization if their new owner is unaware of this risk.
To solve this, HR executives should consider offering performance-based â€˜earnout’ incentives, tied to revenue or cash flow, to affected employees. This reinforces continued investment and innovation from key employees.Â
Additionally, companies should work to promote pay equity across their organization to build trust and an inclusive culture. This is particularly relevant in the tech industry since tech executives attribute 48%Opens a new window of attrition to better wages/salaries. HR executives can use technology to gather data on employee compensation and include this as a component of their change management plan.Â Â
It’s About Value, Not Just Money
Seven in 10 employees see a company’s greater purpose and impact on society as a â€œdealmaker/breakerâ€ when considering a job. More than ever, employees expect adequate compensation and flexibility from their work and want their employers to stand up for issues they care about â€“ including diversity, sustainability, charitable giving, and ESG issues.
Tech employees are no exception, especially as many come from strong value-based company cultures. Since retention is unique to every individual â€“ HR executives should use listening tools and connect with their employees directly to learn about their passions and deal-breakers. At a leadership level, HR execs should know that these issues can be crucial for employee retention, potentially as or more important than compensation.Â
Implementing upskilling tools and resources assures workers that their employer is invested in their career development. Just like a 401(k), upskilling is a benefit that sets employees up for success in the future. Additionally, upskilling creates a more digital-savvy workforce, which can make for a more seamless transition.
In the face of labor shortages and ever-evolving business challenges, M&A can help companies grow, innovate, and create more effective operations. A strong talent management strategy is the foundation of a successful M&A; without one, the effectiveness and innovation that prompted the M&A, to begin with could be lost. By using the right technologies to identify the appropriate motivators, such as upskilling opportunities, strong performance incentives, and pay equity, companies can develop a talent management strategy that promotes a seamless culture integration that plays on both organizations’ strengths.
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