Seizing Talent Selection Opportunities During M&A Transactions
In Aon’s M&A Study1, we found that fewer than half of all companies (49%) reported their leadership and key talent strategy as being ‘effective/very effective’ in identifying, selecting, retaining, motivating and developing leadership and key talent in deals. Even more telling is that studies indicate the failure rate of M&As hovers above 70%.2
One could argue that one of the key reasons for such failures is not having a rigorous and systemic approach to address human capital issues over the course of a deal. In fact, our study reveals that a top human capital challenge faced by companies is that they do not have the right leaders and talent in place to successfully drive transaction objectives and sustained performance.2
Based on Aon Hewitt’s research and vast experience in supporting clients as they execute deals, we explain here some fundamental missed opportunities in ‘talent selection’ during transactions and how to capture them.
1. Set talent selection focus early during due diligence stage
Nearing deal close time, most M&A deal members will not deny the overwhelming pressures and anxiety involved in any decision-making. The most commonly heard statement is ‘There isn’t enough time to adopt the ideal approach.’ Not surprisingly, the eventually agreed-upon approach is sub-optimal. Having observed many successful integrations and some unfortunate failures, we realise that a critical missed opportunity is not focusing on talent selection planning early enough in the deal timeline. Planning for talent selection must start in the pre-due-diligence phase, as this sets the very foundation for the rigour to be adopted through subsequent phases.
2. Define forward-looking leadership competencies
We know from the Aon Hewitt 2014 Top Companies for Leaders Study (TCFL) that during times of significant change (even more so in transactions) the number-one driver of workforce engagement is leadership. Selection of the right leaders is a pivotal first step.
Our study shows that 100% of participating organisations have a formal leadership competency model in place. All leading companies use leadership competencies as the basis for any leader identification, assessment and development intervention.
Even in our Global M&A survey, companies cite the criticality of leadership competencies as the foundation for leader identification and assessment, but few companies use such an approach during a deal. While 82% of organisations said that leadership competencies were a top criteria when identifying, assessing and selecting leaders and key talent, only 38% reported having a specific strategy and approach for a formal leadership competency model in transactions. Of those employing a specific approach, only 65% reported using it ‘always/ almost always’.
It could be argued that without a clear definition of highperforming leaders’ attributes that is linked to deal goals and organisational go-forward context, companies will not have the right leaders and requisite talent in place.
Participating organisations in the Aon Global M&A Survey reported that their top three priorities when identifying, assessing and selecting leaders and key talent during a deal are leadership competencies, business acumen and cultural fit.
3. Ensure rigour in assessment approach
As with any talent assessment approach, even during an M&A, it is important to ensure that the assessment approach adopted will meet all desired objectives. Some insights as to what Top Companies (TCFL 2014) do differently to ensure robust, accurate assessment inputs are:
- Tailored assessment tools: Instead of taking a generic, one-size-fits-all approach for mass assessments, Top Companies increasingly employ customised tools for evaluating different employee groups, thus gaining accurate information for each group.
- Assess and align for culture fit: Top Companies use assessments based on performance and potential and also consider individual personality alignment to the aspired organisational culture and strategy.
- Assessment tool robustness: Top Companies deploy robust, multifaceted assessment tools to ensure accurate outcomes. Greater emphasis is placed on the quality and validity of both the tools deployed as well the assessors engaged.
- Make assessments all-pervasive and not limited to only senior levels: In Top Companies, assessments of behaviours and values are conducted more frequently across all levels. This helps companies create a capability map of the entire talent population and allows them to design the necessary developmental interventions needed to bridge skill deficits.
4. Manage employee sensitivities, keeping employee trust intact
Managing employee sensitivities and related implementation considerations are as important as the talent selection approach itself. Two important considerations are:
- Timing of assessments: Post-integration, Day-1 efforts need to be rationalised and we recommend that companies stay focused on priority work. At deal close, the talent assessment focus should remain on leadership and key talent; the rest of the employees can be assessed post close in a phased manner.
- Positioning of assessment: Success of an assessment process hinges on how it is positioned with the employees and whether it addresses employee anxieties. The most important concern HR teams have is ‘What if talent assessment creates anxiety amongst employees and backfires?’ We recommend the following hygiene factors to overcome this issue:
- Ensure assessment messaging is focused on ‘futurecentric, post-merger capability development’, rather than pure ‘selection for the new entity.’ One possible way to build this messaging is to provide postassessment feedback.
- Ensure a great assessment experience by using the right platform/tools and experienced assessors trained to manage assessments in a professional manner. Process fairness and objectivity – both in perception and reality – are extremely important.
- Maintain complete confidentiality of the assessment process, with clear leadership communication, process design, and actions centered on development.
- Support implementation with customised branding and communication.
5. Sustain focus post close, merging with business-as-usual activities
During deal close, focus is limited to leadership selection and key talent assessment and identification. The buck, however, should not stop here. Rather, the focus has to expand to other employees, in order to build overall organizational capability. Key next steps would include:
- In the short term, utilise talent assessment reports to structure a go-forward retention plan to ring fence the identified critical talent and then create a robust on-boarding plan.
- Expand the focus of assessments to other employee groups in a phased manner to establish an overall talent-capability map. Check alignment with desired organizational competencies and ascertain as-is gap from to-be. As a good practice, we suggest that company-wide assessments be completed within 12-18 months of deal close.
- Input the assessment results into the usual talent review process i.e., performance review, learning and development planning, etc. Using these reports, the organisation can then decide what targeted coaching and developmental interventions will be needed to meet their goals.
Solution for moving forward
Where does your organisation stand when it comes to selecting the right leaders and critical talent during a transaction? Do you have the strategy, approach, and tools in place to identify, assess, and select requisite talent?
As a first step, Aon Hewitt recommends that you create a simple, yet rigorous, strategy for leadership and critical talent selection during deals. As you develop your game plan, consider the following best-in-class design principles:
S ustain: Build a robust strategy that carries through from due diligence to post close;
I nvite: Involve leaders from the start in owning the talent agenda and modelling desired behaviours;
M easure: Build in regular metric-based checkpoints to track progress;
P rioritise: Focus on high-impact, must-do initiatives;
L ook forward: Select leaders based on the future direction and culture of the organisation;
E xecute: Deliver with excellence and speed.
Subsequently, at each stage of the transaction, there are critical steps or activities companies should undertake to manage their top talent. These have been summarised in the roadmap below. The sequencing and investment time for these activities matters just as much as the activities themselves.
Case Sample 1
At an American multinational conglomerate, the deal team members are already familiar with leadership competencies and assessment tools, since they are appraised by and evaluate their direct reports using these same tools. The set protocol is for this team to gather assessment inputs from a very early stage through interactions with the target’s leadership team. One caveat, though, is that such inputs are highly dependent upon the quality of such interactions.
Assessments may vary by deal, and even within a deal by individuals, depending upon:
- Number, nature and duration of the interactions, e.g., extensive interactions by multiple team members vs. a short interface by one member
- Timing of the interactions, e.g., assessments made later in the deal process are invariably based on better information than those made earlier on
The company views the process as evolutionary, with early assessments getting refined over time. Clearly, a good understanding of the assessment approach within the deal team and a very early start at pre-due diligence would advance the company’s successful talent approach.
Case Sample 2
A multinational conglomerate uses the same leadership assessment tools and competency model for an acquisition target’s employees that they use in their annual leadership performance appraisal process. Even in situations where the target’s own existing assessment process is strong, the conglomerate considers the target’s past assessment information in the initial deal phase, while assessing target employees according to its own competency model. Their data thus establishes how these employees will perform in the ‘new environment’ on the competencies that matter to the conglomerate, rather than how these employees performed in their ‘old environment’.
In another instance, a global Banking, Financial Services and Insurance (BFSI) organization partnered with Aon Hewitt to draft a new competency framework for a merger deal. These competencies were grounded in the post-merger strategic drivers and goals, with an emphasis on ‘change management’ competency to navigate smoothly through all the transformational changes planned. Further consideration was given to the new entity’s desired cultural requirements. Although the organisation already had a competency framework in place, undoubtedly their existing competencies would prove irrelevant, given the merger goals and combined entity’s go-forward strategic direction.
Case Sample 3
In a merger of two subsidiary companies in Asia Pacific, Aon Hewitt partnered with both organisations to conduct assessments for the top-three employee layers. In selecting this assessment approach, a major priority was to have an objective and independent selection process that would support the building of a performance-based culture in the new entity.
Previously, this organisation had conducted talent reviews using their existing internal company approaches. Interestingly, the high-potential employees identified by Aon Hewitt were quite different from those identified previously using their respective internal approaches.
On further study, the company shared that this internal approach led to the same results each time. Those with higher service years were consistently selected due to an internal bias towards seniority, hence inhibiting accurate identification of the high-performance/potential pool.
Case Sample 4
In the case of a BFSI merger in Asia Pacific, Aon Hewitt helped the client construct a structured and fair process for assessment and selection based on specific employee group needs and sensitivities involved. This was further supported by a rigorous communication workstream to ensure successful implementation of assessments.
Case Sample 5
In a merger between two Japan-based organisations, Aon Hewitt conducted talent assessments to aid the selection process. We partnered with the client to generate multiple data cuts to draw a clear talent-capability map and highlight existing talent deficits. Some data cuts included:
- Japanese vs. expatriates assessment results comparison: Maximum score difference between the two sets were found in the ‘champions change’ and ‘fosters innovation & entrepreneurship’ competencies. This could be because the expats may be seen, and also may see themselves, more as agents of change in the organisation, compared to the Japanese.
- Comparison of assessment results to industry benchmarks: Aggregate scores for each of the sub-strands for ‘customer focus’ when compared to norms revealed that the organisation was:
- In line with the market on ‘focusing on customer’, i.e., delivering on customer needs – a quality one could attribute to the Japanese culture
- Being behind market on ‘develops business opportunities with customers’ and ‘networking’ poses a serious developmental requirement for the organisation, if they are to leverage the synergy benefits targeted through the merger.
1 The Big Idea: The New M&A Playbook, Harvard Business Review, 2011, https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook
2 Aon Global M&A Survey 2010
Aon Strategic Advisors & Transaction Solutions
Director, Talent & Performance