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BW Businessworld

Culture Shock

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its campaign to familiarise staff with the company’s values.

During the early part of this year and throughout last year, India Inc. has been out and about with its shopping cart, acquiring companies within and beyond the nation’s borders. Cross-border transactions were the dominant theme in 2007. Such deals, including both Indian companies acquiring abroad and multinationals acquiring equity stakes in Indian companies, accounted for 94 per cent of M&As by deal value in 2007, as against just about 55 per cent of the total in 2005. Domestic M&As, which involve Indian companies acquiring other local companies, declined in terms of transaction value. But even as the shopping cart grew more powerful and looked prettier, there were other little niggling issues that began to rear their ugly heads.
Numerous studies confirm the need for firms to systematically address a variety of human resource issues and activities in their merger and acquisition activities. Some of the biggest obstacles cited by one and all include cultural challenges, anxiety resulting from what the change could mean for existing employees in terms of their career growth, and aligning of processes, systems and value beliefs of both the buying and acquired entities.
“Inorganic growth as a part of overall growth strategy is new to Indian companies and, hence, there is no institutional knowledge they can fall back upon to figure out how they should go about dealing with the different facets of acquisitions,” says Sunit Sinha, principal and business leader for global M&A consulting at Mercer Human Resource Consulting. “It is easy to figure out the financials of a company but integration including retaining employees and keeping them happy is a huge challenge.”

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Global Perception
Another issue Indian companies face is global perception of India and its companies. For instance, those who are in the IT industry will know Infosys, but for others it’s merely another company from an emerging economy called India. So, Indian companies are forced to go to new markets and resell their brands even to those companies that they have already acquired.
Says Amitabh Chaudhry, CEO and managing director of Infosys BPO, which gained 1,400 employees post it’s acquisition of Royal Philips Electronics NV’s three BPO centres, “The biggest challenge we faced was going into a country where they had not heard of Infosys. The people didn’t know what Infosys stood for, what it had managed to create in India and, more importantly, what plans it had for them.” In such a context, the anxiety levels are much higher and it requires constant and repeated communication interventions over a long period of time to convince the employees of the acquired entity.
Companies such as Infosys need to familiarise acquired employees with their company, their value systems, their processes and their intentions for growth going forward. Chaudhry stresses the need for absolute transparency and credibility in the communications undertaken. “If you over-promise and under-deliver, you lose credibility amongst the employees and that could ruin your long-term prospects,” he says. “Also ensure that the right people are chosen to engage with the new employees of the acquired entity. Some people unwittingly tend to send out wrong signals.”
Familiarising Brands
The Tata Group, which was amongst the first Indian business houses to enter into the M&A space, has been consistently shopping for companies in the global market. “One of the main challenges when we look at the many acquisitions including the one of Daewoo, was familiarisation with the Tata Group,” says Satish Pradhan, executive vice-president for group HR at Tata Sons. He says that by launching a campaign, Tata companies made themselves attractive not just to the decision makers, but also to the managers, to the staff, and to the communities involved in the companies acquired. For instance, in the case of steel major Corus, the key was getting Corus’s employees to begin to think that Tata Steel has a global steel business, and that a huge investment has taken place underneath the surface.


The other challenge is that deal making is not as much in the DNA of Indian companies as it is for firms in the US and Europe. “In corporations abroad, we tend to see full fledged M&A teams whose year-round job is to look at various aspects of prospective deals,” says Mercer’s Sinha. “And it includes people from every department such as finance, HR and strategy who figure out and finalise templates of how to go in as and when required. But in India there is no such strategy.”

Tough Task: Indian corporates often face cultural challenges due to different work cultures at both ends

Cultural Challenge
Each acquisition, of course, comes with its own unique set of challenges, as Wipro, which has completed the acquisition of about 12-13 companies, has learnt. “The first challenge is the oft- repeated cultural challenge,” says Pratik Kumar, executive vice-president for human resources at Wipro Limited. “Another major issue is ensuring that critical talent continues despite the external changes.” That has everything to do with how people perceive the buyer and its intentions for the acquired company. Buyer companies need to ensure that the top management and other key functionaries of acquired companies are convinced of its plans and are willing to invest in future growth and stay on to ensure it happens. “That sends across a strong message to other employees, which helps them gain confidence and trust in the positive impact of the change taking place,” says Kumar.
The work culture at both ends of the spectrum is another issue. For instance, traditionally Indian companies have had a higher level of tolerance for ambiguity, whereas their counterparts in North America and Europe are used to well-structured systems with lots of transparency and clarity. Indian companies tend to adopt the “we-will-take-it-as-it-comes” stance, which does not go down too well with those being acquired, further causing cultural disturbances.
“Some of the many challenges we have encountered include having a thorough understanding of the target entity prior to closing the transaction, so there are no surprises after the ink is dry on the deal,” says Rajeev Dubey, president of HR & corporate services and member of the group management board at auto major Mahindra & Mahindra. It is extremely essential to develop a detailed action plan that ensures maximum potential to effectively integrate, operate and grow the acquired company. “The Mahindra experience has been that the amount, and level, of integration has been totally dictated by the business imperatives of the acquisition,” says Dubey. “We also insist on a clearly defined review mechanism, which is rigorously implemented, and have processes built in for learning and course correction at all important stages.”
Inefficient HR
“There might also be a large number of deals in which the acquired company itself does not have sophisticated HR practices in place, lending greater complexity to the acquirer when he tries to bring in best practices,” adds Sinha of Mercer Consulting. This, he explains, is especially true when the acquired entities are small with a maximum of 100 employees. At that point companies prefer to take a defensive strategy based on least resistance, by maintaining status quo as far as operations are concerned and simply putting two of their own people on the boards, who ensure the pre-determined objectives are met. Exceptions to this are companies such as Infosys and Wipro, which place a lot of emphasis on HR practices given the very nature of the industry they are associated with.
Sinha gives an example of a Kanpur based company that manufactures bullet proof vests, acquiring a 100-people company in Munich, Germany simply because they produce a special type of alloy that goes in the making of vests. “The labour laws in Germany are different from those in India, and so is the work culture,” he says. “But those were not the primary concerns when the acquisition was considered. The deal was part of the advice given by the company’s client who felt it could benefit from backward integration.”
So, are Indian companies still lacking when it comes to the art of making global deals? “Yes,” says Sinha, who suggests that a sort of “flavour-of-the-month” phenomenon is what we are seeing right now amongst Indian corporates who are looking for good buys. Nonetheless, what is important is that employees of an acquired organisation must be made to buy into the acquirer’s vision for any acquisition to succeed, particularly a global one marrying absolutely diverse cultures. As Tata Sons’ Pradhan puts it, “An intellectually elegant system will never work if you don’t have the people flowing in and singing with it.”
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With inputs from Piya Singh
(Businessworld issue 29 April-5 May 2008)