Human Capital Focus Areas in M&A HR Due Diligence and Post Merger Integration Planning August 2014 Learning objective
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Human Capital Focus Areas in M&A HR Due Diligence and Post Merger Integration Planning
August 2014
Learning objectives At the end of this program: M&A Lifecycle and Human Capital Focus Areas Focus Area - HR Due Diligence Focus Area – Leadership and Culture in M&A Focus Area - HR Integration in M&A
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M&A Lifecycle
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Common M&A terms
Acquisition
Merger
General term for the process by which a buyer comes to own the stock or assets of a corporation.
A legal procedure whereby one corporation is combined with another and the original company legal status no longer exists. ‒ For example, Aon offered shares of Aon stock in exchange for the surrender of Hewitt stock.
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Divestiture
The sale of a piece of a business.
Carve Out
Occurs when a parent company sells a minority (usually 20% or less) stake in a subsidiary for an IPO or rights offering.
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Key parties involved in M&A transactions
The Target (or Company)
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The company being considered for purchase.
The Seller
The company and/or investors who own the Target (i.e. parent company or public stockholders)
The Buyer
The company and/or investors seeking to acquire the target.
Deal Team
Financial advisor, legal counsel, accountant, tax advisor, etc.
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M&A Lifecycle Overview Approach
Execution
Pre-announcement
M&A Strategy
Target Screening
Announcement Due Diligence
Transaction Execution
Close
Integration
Divestiture
Business Focus • Assess • Detailed • Develop M&A valuation, screening of strategy and synergy targets potential targets capability to on the basis of • and risks, and compliment strategic fit, potential fit corporate cultural fit, and strategy and value potential business model
• Capture • Determine • Capture anticipated value appropriate deal anticipated value and mitigate risk structure to align and mitigate risk by planning and with synergy by planning and managing the targets and managing the combination strategic separation/setup process considerations process
Human Capital Focus It is an investigative process of collecting and analyzing appropriate, relevant data before reaching a decision with a goal of understanding the advantages, disadvantages and risks associated with the decision
• HR Financial Due • Key talent and workforce Diligence transition • HR Operation planning Due Diligence • Plan for Day 1 • HR Statutory readiness Diligence
• Plan & manage people integration
Phases with significant Human Capital activity 6
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Focus Area – HR Due Diligence
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HR Due Diligence In any business, people costs range from 30% to 70% of annual operating expenditures, making it by far the largest investment the organization makes each year The intellectual assets are usually worth three to four times the tangible book value of a business, on average across all industries
People
Source:“The Age of Unreason’ by Charles Handy
Process
Culture
HR Due Diligence Result benefits • •
The DNA of an organization
• • •
While due diligence in other area is a standard process for M&A´s, leading companies are only now recognizing the significance of a well-founded HR due diligence. Because: Approximately 60% of all mergers fail due to the fact that the human capital was not correctly evaluated in the previous contemplations!” Source: Deloitte publications 8
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• •
Snapshot of the internal and external corporate identity and business circumstances Recognition and status of the formal and informal leaders within your organization Synergies of HR processes and systems Recognition and motivation of the key employees as well as the strategy to keep loyalty Action plans and scenarios to support change management any time SWOT analysis of both individuals and closeworking-groups Position and relationship analysis Strengths to highlight, weaknesses to improve, opportunities to take and threats to avoid.
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Risks that Need to be Uncovered in HR Due Diligence
Four Areas of Potential Risks Financial • Benefit Plans & Costs, Including Post-Retirement • Pay, Philosophy, Structures & Obligations • Executive Compensation and “Golden Parachutes” • Retention and Severance Plans
Can we identify potential liabilities?
Structural / Operational
Cultural
• Layoffs • Organization Structure Differences • Infrastructures & Systems • HR vendors • Transition Service Agreements
• • • • • • •
Can we put these companies together or be Stand Alone on Day?
Can we overcome our differences?
People
Corporate Style Dominant Player Hostility Decision Making Style Leadership Style Collaboration Style Paths to Success in the Organization
• Key Skills/Workforce Segments • Succession Plans • Talent Retention • Employee Relations Climate • Collective Bargaining Agreements
Can we align our people?
Failure to identify and quantify all relevant risks can potentially result in the “wrong” decisions being made: decision to pursue the deal; deal price; other transaction terms.
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Approach for HR Due Diligence 1.
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Review proxies, government filings, plan summaries provided to members; Petitions to unionize and unfair labor practices
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Review data provided; identify and request additional information as needed
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Map critical HR due diligence needs
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Interview target’s leaders; focus on direction strategies, internal assessment with competitors, key culture, talent, retention issues, HR delivery model, systems, and people
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Major categories of liability should include, executive comp and Pension, Equity based Plans, HR operational ongoing run-rate and one-time costs
Research Public Information (if any) 2.
Identify / Request Data
Timeline – 2 weeks
3.
Conduct Data Room Assessment 4.
Conduct Interviews 5.
Quantify HR 6.
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Produce a short, high level report highlighting all HR liabilities
Prepare Due Diligence Report •
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Provide Input to Deal Negotiations 10
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Provide input to business leaders regarding major liabilities and HR synergy opportunities Negotiate “employee matters” section of the purchase agreement or Transition Services Agreements ©2014 Deloitte Touche Tohmatsu India Private Limited
HR Due Diligence Scope HR Financial Diligence
HR Statutory Diligence
HR Operational Diligence Compensation & Benefits
HR Financial Diligence
Organization and Processes
Quantify items Identify how the target Compare the current impacting the deal cost structures and delivers state and compatibility to uncover risks and its various reward of the two firms’ overall liabilities programs strategy for managing people •
Key Activities
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Analyze financial liability through assessment of: firms’: Employees Provident fund scheme Employees superannuation scheme
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Payment of gratuity act
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Provision of Bonus and Leave encashment
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Employee State Insurance Act
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Assess Compensation Plans, including competitive and short-/long-term incentive analyses Assess Defined Benefit Pension Plans Assess Defined Contribution Plans, including investment policy
Performance Management & Retention Programs
Statutory Compliance & Labor Relations
Identify the target’s retention strategy for core skills and experiences
Assess how the target manages exposure to risks and statutory regulations
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Review HR service delivery and associated costs
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Performance management strategy and drivers
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Asses all HR and pay related statutory documentation
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Compare organizational structure and reporting
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Assess key skills / competencies / workforce segments
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Analyze current employee contracts and associated risks
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Asses the compatibility of HR policies and processes
Assess retention program parameters (participants, timing, payout etc.)
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Assess Trade Union relations and associated risks
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Understand potential severance costs
Assess Health & Welfare Benefits Program, including plan design and funding
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Sample Data collection Sheet
SAMPLE
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HR Financial Due Diligence Quantify items impacting the deal cost to uncover risks and liabilities analyzing key provisions of the company sponsored benefits & welfare and retirement programs. The scope would include : Scope of Diligence
Impact
Employees Provident fund scheme
Lack of timely records or discrepancies may impact buyer financials
Employees superannuation scheme
Financial impact on the deal
Coverage of Payment of gratuity act.
Provision of Bonus and Leave encashment
Financial impact on the deal. Non-adherence or irregularities call for legal issues Liability to buyer needs to be reflected
Irregular payments may cause cost escalations for buyer. Deviation in buyer vs. seller practices may impact employee morale too
Employee State Insurance Act
Irregularities in documents may call for legal action and legal and financial liability for the buyer
Other mandatory / statutory benefits like maternity/ leave/ group insurance etc.
Deviations in practice and procedure as per Govt. of India may cause legal liability to the buyer
Employee Loan outstanding's
This has huge impact on company financials as well as reflects employee- employer relationship and liability
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HR Operational Diligence - Compensation & Benefits Identify how the target structures and delivers its various reward programs Scope of Diligence
Impact
Assess Compensation Plans, including short-/long-term incentive analyses
Deviation in practices of buyer and seller may cause employee attrition and also impacts financial liability for the buyer
Analyze Retirement plans •
Any multi-employer pension plan arrangement and historical liabilities
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Confirm with management the absence of any other benefit obligations such as for postretirement medical benefits, benefits, or deferred compensation awards.
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High level comparison of programs to programs of buyer and to local laws and regulations
Assess Health and welfare benefits structure •
Analyze the current health and welfare benefits including but not limited to: leave of absence, medical, dental, life, paid leaves, disability, etc.
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Assess actual historical benefits costs
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High level comparison of programs to programs of Buyer and to local laws and regulations
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Practice impacts culture and people hence apart from financial liability the area also indirectly reflects culture of the seller
Practice impacts culture and people hence apart from financial liability the area also indirectly reflects culture of the seller
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HR Operational Diligence - Compensation & Benefits Identify how the target structures and delivers its various reward programs Scope of Diligence
Impact
Review Employee Insurance benefits
Practice impacts culture and people hence apart from financial liability the area also indirectly reflects culture of the seller
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Medical insurance - coverage, premium and actual utilization data
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Accident insurance - coverage, premium and actual utilization data
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Life insurance - coverage, premium and actual utilization data
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HR Operational Diligence – Organization and Processes Compare the current state and compatibility of the two firms’ overall strategy for managing people Scope of Diligence
Impact Expectations of employees from the “to be “ set up depends on existing people systems, hence evaluation determines extent of integration initiatives needed post the deal finalization
Review HR service delivery and associated costs including: •
Review current HR delivery model and associated allocated costs
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HR budgets and costs
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Review HR software, systems and licenses
Compare organizational structure and reporting •
Review Organization chart
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Location wise headcount analysis
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Review Grades, levels and titles in the organization
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Understand Roles and responsibilities across functions, departments and locations by reviewing Role specifications
Asses the compatibility of HR polices and processes •
Review all HR policies (Hire to Exit)
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Review entire employee life cycle HR processes and standard operating procedures (SOPs)
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The structural representation reflects the cultural orientation of the organization. Flat structure is more informal whereas hierarchical set up demands for much more robust and detail communication plans post deal finalization Work environment designed through unique HR procedures and policies needs to be sensitized with new environment. Hence the analysis reflects the extent of initiatives required for managing change
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HR Operational Diligence - Performance Management & Retention Programs Review and analyze current Performance Management System and data for individuals in management roles Scope of Diligence
Impact
Identify key employees in the organization and assess current performance levels and ratings scores
Can lead to significant diversion of time and energy of key executives if there is lack of alignment between actual performance and rating
Succession plans for senior management roles
The critical workforce needs to be fit in well in the new system The fit shall be in line with the growth prospects in seller’s organization
Process used for management of poor performance
Lack of performance impacts productivity as well stresses the buyer budget hence evaluation of procedures for managing poor performance becomes necessary
Assess key skills / competencies / workforce segments
The analysis of skills and capabilities assists judgment of “fit” of the key personnel's
Assess retention program parameters (participants, timing, payout etc.)
High attrition impacts buyer financially and morally hence analysis of reasons of attrition and existing programs becomes a necessity
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HR Statutory Diligence - Statutory Compliance & Labor relations Assess how the target manages exposure to risks and statutory regulations Scope of Diligence
Impact
Review all HR related statutory and compliance documents including: •
PF contribution details - Number of employees covered, Copies of returns filed with the agencies by the companies
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ESIC contribution details - Number of employees covered, Copies of returns filed with the agencies by the companies and outstanding details if any
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Filing of Employee income tax returns
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Employee Labor Welfare - Copies of returns filed with the agencies by the companies and outstanding details if any
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Number of contractual/outsources labor and details of labor contractors/outsourcing vendors
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Contractual labor (R&A) act - Registration details of the principal employer and contractor
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Details of employer /employee legal case (if any)
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Pending issues and correspondence with Labor Commissioner’s office, factory inspectors, labor officials etc., if applicable
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Legal and financial liability on buyer
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HR Statutory Diligence - Statutory Compliance & Labor relations Assess how the target manages exposure to risks and statutory regulations Scope of Diligence
Impact
Review Employee and Labor Contracts: •
Employment contract /Job Contract /Labor contract
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Minimum wages check as Payment of Wages Act
Assess Trade Union relations and associated risks • Location wise - Union details and number of employees affiliated • Applicable collective bargaining & Works Council and Tripartite agreements • Employee Disciplinary cases (if any) • Details of union vs. employer legal cases ( if any)
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Legal and financial liability on buyer
Legal and financial liability on buyer
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Key Outcomes of Due Diligence
Identification and quantification of “land mines”
Identification and quantification of deal risks and integrations risks, challenges and opportunities
Baseline for integration planning across the function
Foundation for initial change management and cultural integration assessment
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Key lessons learned from due diligence experience…
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1.
Insufficient Financial Information • Broad cost range estimates and optimistic forecasts should not attempt to compensate for areas in which the Seller has not adequately disclosed information. • All due diligence reporting should include full disclosure of areas in which sufficient information has not been provided by the Seller.
2.
Disjointed Due Diligence Teams • There needs to be a clear linkage between all diligence teams to cover interdependencies and gaps. • While the accounting team may have responsibility for most of the Balance Sheet and Income Statement, they may not have responsibility for the benefits and compensation costs.
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Inadequate Knowledge Transfer • Despite transfer of documents and findings, there is minimal transition of knowledge and issues from due diligence to integration planning. • Early involvement in the diligence phase is recommended to ensure tighter linkage with Integration/Divestiture teams
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Inadequate Attention to Culture • Cultural mismatches can greatly slow and limit the effectiveness of integration processes. • Critical incompatibilities in decision making processes, management style, conflict resolution, information sharing or hoarding should be identified and assessed for potential impact during due diligence.
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Focus Area - Leadership and Culture in M&A
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View of the CEO: “I see the best way forward, I am all for it –Now!”
View of the Board: “The reasons for the merger are clear but there may be some problems and I feel uneasy investors reaction”
“There are just too many things to do over and above my day job! I can’t see how we can do this”
Change
View of middle management:
Time
“What’s going on? What does this mean for my job security? Who are the people I will be working with in the future? How do I need to change?”
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Change
View of employees:
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Key employee concerns boil down to five questions once a deal is announced Will my pay and benefits change?
Who will I report to?
Will my title and status change? Will I have a job?
Do I need to relocate?
To retain key talent and maintain business continuity, address the “Big 5” with a communications and change management strategy 24
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The impact of culture on M&A Cultural influences during M&As can have significant impact on value realization Cultural affects:
How people work together
Lessons Learned • Merged companies create new teams with cross-legacy compositions and new interfaces between unfamiliar teams – if ways of working are inconsistent, the processes or handovers may break down and synergies may be threatened
Ability to change
• Ingrained attitudes can be hard to change resulting in an unwillingness to implement new strategies and resistance to work through the inevitable difficulties in creating a smooth-functioning merged company
Decision-making style
• Culture influences how decisions are made, and in a merged organization different decision-making styles (e.g. centralized vs. decentralized) can lead to slow progress around key decisions
Value and beliefs regarding success
• Values and belief systems influence behavior – consider a merger environment where some believe that teamwork constitutes success versus others who believe success is gained through individualism
Risk tolerance
• Cross-legacy risk tolerance and risk culture differences can have the potential to influence organizational outcomes, especially if there is a lack of awareness of risk orientations
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Keys to effective cultural integration
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Engage the top leadership team in the culture initiative – leadership behavior will be the most powerful driver of the desired future state culture
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Cultural change should be proactively and deliberately managed, and engrained within the overall integration program
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Clearly define and establish a shared understanding of the desired future state culture for the combined entity
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Design the future state culture to support the corporate vision, business strategy, and merger integration objectives
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In designing the future state culture, don’t assume that legacy cultural strengths can necessarily be combined – it is possible they may not be compatible
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Monitor and measure cultural change over time and adjust cultural interventions as necessary
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Leadership Journey To achieve integration success, leaders must adapt quickly, demonstrate conviction and consistently reinforce the vision of the future organization Key Leadership Behaviors: Effectively address “me” issues Consistent communication Deliver clarity and focus Take action and decision Manage resistance Champion change Demonstrate commitment, confidence, and purpose Inspire trust and community
Employees having positive integration stories cite leadership, communications, management of employee issues and cultural compatibility as success factors 27
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Cultural Assessment Activities Activities 1
2
3
Desktop Review* Review of values, brand strategy, engagement surveys, organisational strategy, integration history and current operational challenges and hot spots
10 20 30 40 50 60 70 80 90 100
Culture Diagnosis Carry out cultural diagnostic to identify ways of working across the organisation, as well as engagement levels
Identifying cultural differences
Summary Findings Review and analyse findings in line with corporate strategy, current organisational issues, emerging HR strategy and good practice. Determine the gap between current and target culture
4 Target Culture Definition Define target culture and develop design principles. Examine and identify the organisational levers that can be ‘pulled’ to effect change within the organisation 5
Culture Assessment
Biggest positive shift
CulturePrint™ Tracking future cultural shifts
Internal Integration
External Norms of Orientatio Behaviou n r
Dominant Cultural Traits
Red Tap e
Botto m Line
Business Horizons/ Visions
Tangible interventions to improve ways of working
Culture Change interventions* Identify tangible activities to improve ways of working, including quick wins and priority interventions to address hot spots and conflict areas 28
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Focus Area – HR Integration in M&A
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60% of all mergers fail due to errors in the approach and execution of the merger. Many of the obstacles to a successful acquisition are people or culture related… Desired Outcomes
Typical Results
Approach Errors
• Rapidly capture cost and revenue synergies • Streamline organization structure and critical business processes • Minimize disruption to customers • Execute an issuefree transition • Maintain focus and current business momentum
Success 40%
30% of Failures
Failure 60%
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Never Developed New Product Overestimated 8% Market 16%
70% of Failures
• Only 25% earn ROI
• First 4 to 8 months productivity reduces by 50%
Too Far Removed From Core Competencies 12%
Execution Errors
• Cost reduction targets not achieved in 70% of cases • Customers notice and are frustrated by change
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Insufficient Wrong Partner Information About 18% Partner 18%
Environment Changed Drastically 28%
Poor Leadership 23%
Cultures Too Different 22%
Wrong Focus 16% Leadership Unclear 18%
Poor Integration 21%
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Steps in integration planning Human Capital Integration Activities
HR Blueprint ID
• Set the strategy and structure for full integration • Develop plan of action and milestones
Roadmap
• Develop specific objectives by team
MilestoneID Task Name
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Program Milestones
364 365
Integrated workplan
Clean Room Milestones CR1
Clean Room Established
Finish
TeamsWeAreDependentUpon
Functional Team
MilestoneCategory
Mon 1/3/05
Clean Room
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Start TeamsDepe
0 days
Mon 1/3/05
0 days?
Mon 1/3/05
0 days?
Mon 1/3/05
366
CR2
Clean Room Procedures and Templates Launched
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
367
CR3
Initial 3 - 5 Analysis Requests Prepared by Teams for “Dry-Run”
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
368
CR4
‘Dry-Run’ of Initial Analysis Requests Submitted and Critiqued
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
369
CR5
Initial Analysis Requests Prepared and Submitted
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
370
CR6
Initial Clean Room Staffing Plan Prepared
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
371
CR7
Submission of Additional Analysis Requests to Clean Room Complete
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
372
CR8
Training and Entry of Clean Room Personnel Complete
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
373
CR9
Clean Room Analyses Complete
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
374
CR10
Logistics Set for Clean Room Read-Out Sessions
Mon 1/3/05
Clean Room
0 days?
375
CR11
Clean Room Opens
Mon 1/3/05
Clean Room
0 days?
376
CR12
Clean Room Read-Out Sessions Complete
Mon 1/3/05
Clean Room
0 days?
Mon 1/3/05
1 day
Mon 5/16/05
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CompanyC Milestone Map
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Marketing
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Mktg1
Working Hypotheses of Business Segments
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Mktg7
Develop Menu/ Master List of Potential Retention and Up-Sell/ Cross-Sell Offers and Products/ Services Portfolio
Mon 5/16/05 W ed 6/15/05 Thu 3/10/05
69 days? Business Sales
ConsumerMarketing and Business Segment Definitions
Fri 3/11/05
Marketing
Day 1 Retention and Up-Sell/ Cross-Sell
Integration team work plans
• Provide timing and sequence for project activities
• Coordinate major activities for all team work streams
• Link milestones and align resources
• Establish dependencies for critical project activities
• Provide detailed activities and timing for the teams to execute and measure against
• Create team structure and schedule
• Create mechanism for detailed tracking
• Create mechanism for status reporting
• Serve as an indicator of potential project timing issues
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Duration
Mon 1/3/05 Mon 1/3/05
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0 days? 0 days?
Mon 1/3/05 Mon 1/3/05
Thu 3/10/05
ThuBusiness 3/10/05 Sales & Fri 3/11/05
Develo
Crucial roles for Integration Planning Three Crucial Roles for HR Organisation Design &Staffing What are the major Org Design and Staffing focus areas during integration? • Creation of selection criteria • Level 1, 2 and 3 appointments • Post Day 1: • Create org structures • Define position requirements • Employee assessment / selection What are the priorities to integrate ƒ quickly – primary Day 1 concerns? • Level 1, 2 and 3 leadership ƒ • Selection criteria (to show clarity / fairness) • Work closely with Change Management and Communication Team(s)
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Change Management & Communication How to alleviate the ƒ anxiety among employees and customers in all organisations? What are the major areas that ƒ need Change Management and Communication during integration? • Employee Experience • Customers / Suppliers • Trade Relations • Investors • Media / PR How can we minimise customer / ƒ employee disruption? What roles do leadership and ƒ key decision makers need to play?
HR Functional Integration What are the major HR focus areas d ƒuring integration? • Compensation and Benefits • Performance Management • Training • Employment Matters / Compensation & Benefits • HR Service Delivery • International Deployment What are the objectives of the HR ƒ functional workstreams? Who are the key integration decision makers and what is the decision making process? What are the key issues for ƒ Day 1 readiness?
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Organization Design and Staffing: Organization Design The typical first three steps of the organization design process focus on creating a vision for the organization and stabilizing leadership in preparation for Day 1 and the rollout of the new structure.
1
2
Operating Model
3
Organization Structure
Leadership Appointments
Step 1: Define Operating Model Confirm core Buyer & Target strategic objectives including product portfolio, geographic footprint, position in industry, and growth strategy
Agree on how to develop, sell and deliver products, service their customers, and support the business Tightly coordinate with Growth Strategy team and Synergy team Develop Day 1 & End State Operating Models
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4
Position Requirements
5
6
Assessment and Slating
Step 2: Develop Organization Structure
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Final Selections
Outplacement
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Redeployment. Retention and Transition
Step 3: Determine Leadership Appointments
Create guidelines for organization (spans of control, leveling, etc.)
Create accelerated leadership appointment process
Determine roles and positions required to support the Buyer & Target operating model
Determine Level 1 leadership
Define reporting relationships Analyze staffing requirements by function, location and position Identify and document current state positions targeted for reduction
Inform/announce L1 leaders Work with L1 leaders to define L2 Inform/announce L2 leaders Train L2 leaders in selection process to determine L3+ organization
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Organization Design and Staffing: Employee Selection The organization planning approach outlines key steps for Buyer & Target HR Partners and business leaders to assess and select employees into their organizations in alignment with their headcount synergy targets. 1
2
Operating Model
3
Org Structure
Leadership Alignment
Step 4: Define Position Requirements Gather or develop job/position descriptions for each Buyer & Target position in the new organization Determine the skills, capabilities and responsibilities for each Buyer & Target position
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4
Position Requirements
5
6
Assessment and Slating
7
Final Selections
Step 5: Conduct Assessment and Slating Develop assessment and slating guidelines Facilitate review of pool of talent and determine potential candidates for each open position Develop comprehensive, comparable list of employees by position for redundancies, retention, and exit
Outplacement
8
Redeployment, Retention and Transition
Step 6: Make Final Selections Determine criteria for making final selection decisions Identify employees who should remain in the organization, and those who will be part of the exit process Identify employees to be considered for redeployment within Buyer & Target During selection, continuously verify that the outcome of the selection process meets synergy targets
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Organization Design and Selection: Employee Transition The workforce transition approach facilitates key steps and strategies to stabilize the new organization after final selection decisions.
1
2
Operating Model
3
Org Structure
Leadership Alignment
4
Position Requirements
Step 7: Manage Outplacement Process Conduct disparate impact analysis
Define legal requirements, and prepare severance packets Determine outplacement support Conduct notification training with managers Conduct final exits
5
6
Assessment and Slating
7
Final Selections
8
Outplacement
Redeployment, Retention and Transition
Step 8: Manage Redeployment Process Extend offers to selected employees and announce new organization Define retention criteria and create retention plan – Identify critical, at-risk employees – Determine best programs. i.e., engagement, talent management, growth/ development programs, recognition, completion bonus Prepare for comprehensive knowledge transfer and transition, including training Facilitate redeployment for identified employees
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Crucial roles for HR in Integration Planning Three Crucial Roles for HR Organisation Design &Staffing What are the major Org Design and Staffing focus areas during integration? • Creation of selection criteria • Level 1, 2 and 3 appointments • Post Day 1: • Create org structures • Define position requirements • Employee assessment / selection What are the priorities to integrate ƒ quickly – primary Day 1 concerns? • Level 1, 2 and 3 leadership ƒ • Selection criteria (to show clarity / fairness) • Work closely with Change Management and Communication Team(s)
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Change Management & Communication How to alleviate the ƒ anxiety among employees and customers in all organisations? What are the major areas that ƒ need Change Management and Communication during integration? • Employee Experience • Customers / Suppliers • Trade Relations • Investors • Media / PR How can we minimise customer / ƒ employee disruption? What roles do leadership and ƒ key decision makers need to play?
HR Functional Integration What are the major HR focus areas d ƒuring integration? • Compensation and Benefits • Performance Management • Training • Employment Matters / Compensation & Benefits • HR Service Delivery • International Deployment What are the objectives of the HR ƒ functional workstreams? Who are the key integration decision makers and what is the decision making process? What are the key issues for ƒ Day 1 readiness?
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Employee Experience & Change Management Strategies In the context of a merger, change management also encompasses the organization’s employees’ and leaders’ readiness to accept, engage, and demonstrate commitment to the new organization.
Organizational Readiness and Change Assessment
Culture Assessment & Planning
Change Management Strategy
Communication & Engagement
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Leadership & Manager Alignment
CM Strategies
OBJECTIVES
Organizational Readiness and Change Assessment
Management understands the individual needs of specific employee segments (by function or geography). Organization understands changes and is ready to embrace them.
Leadership & Manager Alignment
Leaders with credibility and influence visibly support the change. Management participates in Workforce Transition activities and visibly support the approach
Communication and Engagement
Employees are well informed about, involved in, committed to and understand the changes. They believe management understands and is addressing their concerns and is following a fair approach to workforce transition.
Training
Leaders and employees have the training to develop (a) the Change Management and leadership skills they need to effectively manage the transition and (b) the technical skills they need to perform their new jobs.
Culture Assessment and Planning
Alignment of the organization's values, and beliefs and behavioral drivers— thus generating the desired behaviors.
Training
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Best Practices in Communication- “Plan the Trip Well” Most important aspect is to understand and articulate the need for change. And to manage articulate some of the best practices used:
1. Getting everyone on Board • Define the need for change in a merger. • Create a clear picture and enthusiasm
2. Make sure someone is removing the roadblocks
3. Check the rear view mirror
• Clearly communicate the project sponsor to help remove roadblocks
• Create and aggressively communicate a dashboard that highlights the timelines to avoid conflicts
• Articulate and endorse the vision. • Let leaders cascade messages
• Put on a roadshow presentation for leaders
• Include a detailed change management and communication plan • Constantly keep checking the maturity
• Develop workforce transition and communication plan
• Create Leadership Alignment
• Define the medium of communication depending on the level of stakeholders
• Proactively facilitate cross functional sessions ©2014 Deloitte Touche Tohmatsu India Private Limited
Best Practices in Communication- “Hit the Road” Lack of clarity around structure, activities, roles and responsibilities can result in confusion and resistance, making mergers extremely difficult. Include these aspects as a part of communication plan
4. Put the horse before the cart
5. Prepare for detours
• Hold Project kick off sessions to clearly spell out the expectations and objectives
• Communicate key changes to systems, processes and organizational structure
• Need to communicate using metaphors & analogies to describe strategic direction
• Communicate how the roles and responsibilities will change
• Revisit and reinforce roles and responsibilities regularly
• Create “role impact guide”
6. Ask for directions along the way • Create change networks, a multi directional communication channel gives a better feel about the merger
7. Get people ready for the transition • Create clear messages and responsibilities for all employees
• Provide monitoring and feedback mechanisms
• Create necessary FAQs and help desks for employees ©2014 Deloitte Touche Tohmatsu India Private Limited
Best Practices in Communication- “It’s a Journey and not a Destination” Planning the timelines for the merger, enable organizations to successfully transition to the new phase
9. Anticipate and mitigate resistance
10. Identify and deal with and defuse unanticipated impacts
• Provide sufficient post merger support by communicating purpose
• Communicate and celebrate quick success
• Managing expectations is critical
• Repeat communication
• Reiterate the benefits of the new phase through effective channels of communication
• Develop change agents and enable them communicate the
8. Stay on the right tracks
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Communication is a very important and active role in an integration
Articulate the need for change, vision and purpose to the organization LOUD and CLEAR
Articulate
Repeat
Create enough COMMUNICATION CHANNELS to help reiterate the purpose
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Aim to create a repeatable model for Mergers and Acquisitions. Keep REPEATING the communication during the process
Reiterate
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Crucial roles for HR in Integration Planning Three Crucial Roles for HR Organisation Design &Staffing What are the major Org Design and Staffing focus areas during integration? • Creation of selection criteria • Level 1, 2 and 3 appointments • Post Day 1: • Create org structures • Define position requirements • Employee assessment / selection • Retention strategies What are the priorities to integrate ƒ quickly – primary Day 1 concerns? • Level 1, 2 and 3 leadership ƒ • Selection criteria (to show clarity / fairness) • Work closely with Change Management and Communication Team(s)
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Change Management & Communication How to alleviate the ƒ anxiety among employees and customers in all organisations? What are the major areas that ƒ need Change Management and Communication during integration? • Employee Experience • Customers / Suppliers • Trade Relations • Investors • Media / PR How can we minimise customer / ƒ employee disruption? What roles do leadership and ƒ key decision makers need to play?
HR Functional Integration What are the major HR focus areas d ƒuring integration? • Compensation and Benefits • Performance Management • Training • Employment Matters / Compensation & Benefits • HR Service Delivery • International Deployment What are the objectives of the HR ƒ functional workstreams? Who are the key integration decision makers and what is the decision making process? What are the key issues for ƒ Day 1 readiness?
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HR Functional Integration – Typical Structure and Scope HR Functional PMO
HR Service Delivery, HRIS & Payroll • Core data migration / conversion • Payroll integration / separation • Vendor management
Staffing & Recruiting • Recruiting strategy • Process and systems integration / separation
Compensation • Compensation analysis • Job leveling • ST and LT Incentive / Equity plans
Training
Performance Management
Benefits & Policies • Comparative benefit analysis • Policy analysis and development • Program administration • Open enrollment
Labor Relations
• Needs assessment • Learning Management integration / separation • Development of programs
• Program design (linkage with company objectives) • Unified process and infrastructure
Onboarding
• Collective Bargaining Agreements • Works Councils and consultation • Employment contracts
• New Hire requirements and processing • Employee orientation
Global Coordination Synergy Planning 44
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HR Functional Stakeholders Planning the HR Functional integration / separation requires alignment amongst stakeholders who rely on HR data and services.
HR Leads: • What do I need to know about supporting colleagues from both legacy organizations?
Procurement: • How will employees make purchases?
IT: • Are the downstream application requirements able to be met?
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Employees: • Is my compensation changing? • Are my benefits changing? • Is my title changing? • Where do I go to make data changes / utilize self-service?
HR
Finance: • Are employees mapped to cost centers? • How will approval levels be set?
Sales: • How will we administer sales compensation? • How do employees get business cards?
People / Hiring Managers: • How do I make changes to employee data?
Facilities / Real Estate : • Will employee badges be provided to enable access to buildings? • Will employees be relocating?
©2014 Deloitte Touche Tohmatsu India Private Limited
Deloitte’s eminence in M&A Integration has resulted in several publications, cutting edge thought ware and top recognition Top recognition
Shortlist of publications
Punit Renjen, the leader of the Deloitte’s Mergers and Acquisition Services, was recognized by Consulting Magazine as one of the “Top 25 Consultants in 2007.”
Year of Living Strategically
This recognition reflects our clients’ endorsement of Punit’s effective leadership in bring the best of Deloitte’s M&A Integration services to them
The Overconfidence Dilemma: Why Companies Exaggerate Their M&A Skills
Cutting edge thought ware M&A Compendium "Making the deal work: Perspectives on driving merger and acquisition value" — collection of articles based on real-life examples from some of the most complex M&A integrations
M&A IT Compendium ‘Wired for winning? Managing IT effectively in M&A’ — compendium takes a deep look into IT issues related to mergers, acquisitions, and divestitures M&A Straight Talk Book Series — M&A Lies (And why they’re sometimes true)
Beyond Human Resources Integration. Is a merger the right time to launch a transformation?
Integration, The Cisco Way Consumer Products: M&A Avoiding M&A Disconnect Half-Truths of Integration
Anatomy of Acquisitions HR Management Handbook for Acquisitions Addition by Subtraction: Realizing Carve-Out Value
Merger Aftershocks: Surviving the people challenges of a postmerger integration
Publications are available free of cost for Deloitte clients. The M&A library can be accessed at http://www.deloitte.com/US/M&ALibrary
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What our Research says ..
Figure 1: Focus and timing of key priorities
What characteristics distinguish the high performers from the others? How are those companies able to beat the odds and achieve sustained growth post-integration? .. Eight customer-focused priorities emerged as important enablers of successful growth associated with M&A transactions. (Ref: Figure 1) d
Deloitte Whitepaper : Deloitte Review: Growth through M&A , 2012
Measuring true Post Merger Success? Based on the extent to which targets like cost synergies, cross selling or know-how transfer are met. But, for a true merger success, reaching these targets alone isn’t enough. Factors like implementation costs going over budget or key personnel leaving the company in droves may result in major delays, even as key targets are attained. Deloitte in its study, thus extended its definition of PMI success to include criteria such as implementation efficiency and social compatibility – seen in the company’s management systems, its underlying ideology, and in its relationship with employees (for example, employee participation, working hours, pay, health and social security benefits, etc.) 47
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Case Studies
Deal Rationale
Integration Approach
Lenovo entered into a strategic alliance with IBM where IBM remained the preferred services and customer facing provider and Lenovo would act as IBM’s preferred PC supplier.
Lenovo’s integration approach factored in IBM’s initiatives and developed a timeline to complete the biggest cross border acquisition by a Chinese company.
The deal rationale includes gaining synergies from:
•
Complementary product lines
•
Extended customer base
•
Varied geographical presence
•
Supply chain and distribution efficiencies
•
Combined intellectual property
• Designed and implemented a new global operating model to ensure focus on international operations while maintaining dominance in China. • Integrated the sales force, and supply chain and demarked a clear go-to-market model for each geography to realize synergies.
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Key Lessons
COMMUNICATION,
CUSTOMER
• Communication: The combined entity proactively communicated a clear value proposition to each key customer and stakeholder, to protect its customer base • Customer focus: Lenovo rationalized the entire product portfolio post acquisition based on the combined capabilities of the merged entity
FOCUS….
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Case Studies
Deal Rationale • Start targeting larger ITES deals • Expand the service footprint by getting some of the niche service offerings • Expand the geographical coverage of business
Integration Approach There were a few challenges in the deal: • Smaller company was acquiring a larger one • The deal was to put a lot of financial pressure on the books • There was a distinctive difference in culture of the 2 firms Realizing upfront that integration is going to be tricky, a very structured approach was put in place for the integration program
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COMMITMENT,
EMPLOYEE
ENGAGEMENT,
Key Lessons • Leadership commitment: Top leaders (CXOs) committed a lot of time in driving the integration program • Employee Engagement: Involving people from both sides upfront in the integration program led to a much faster integration (4-5 months) • Communication: This was given the highest priority across work streams • Synergies: Revenue and cost synergies were key focus areas and integration of sales teams was done while identifying cost ones
SYNERGY FOCUS ©2014 Deloitte Touche Tohmatsu India Private Limited
Case Studies
Deal Rationale
Integration Approach
With low design costs, remarkable efficiency and an extensive dealership network, Chrysler appeared to be the perfect match for Daimler-Benz. It was anticipated that the new entity would take advantage of synergy savings in:
• retail sales, • purchasing, • distribution, • product design, and • research and development
CULTURE
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While the merger was initiated to obtain synergy savings, the integration process was aligned to independent functioning of the units: • Distribution and retail sales systems largely remained separate, owing generally to brand bias
• Differing product development (While Daimler-Benz remained committed to its founding credo of "quality at any cost", Chrysler aimed to produce price-targeted vehicles) philosophies continued to hamper joint purchasing and manufacturing efforts as well
Key Lessons
• Culture conflict: Inability to effectively manage the larger rifts in business practices and differing management sentiments • Talent retention: Instability and productivity dip due to exit of key members of the legacy Chrysler management, which changed the work ecosystem at Chrysler
CONFLICT NOT ADDRESSED, INEFFECTIVE TALENT RETENTION….
©2014 Deloitte Touche Tohmatsu India Private Limited
“It is not the strongest species that survive, nor the most intelligent, but the ones who are most responsive to change” ……..Charles Darwin How do the expectations we have of leaders change during the integration? How to prepare to drive change and lead employees during the transition?
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