HR Due Diligence Training Final2

August 2014
Human Capital Focus Areas in M&A

HR Due Diligence and Post Merger
Integration Planning
2014 Deloitte Touche Tohmatsu India Private Limited
Learning objectives
At the end of this program:

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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
M&A Lifecycle
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Common M&A terms

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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.
The sale of a piece of a business.
Occurs when a parent company sells a minority (usually 20% or less) stake in a subsidiary for
an IPO or rights offering.
Acquisition
Merger
Divestiture
Carve Out
Key parties involved in M&A transactions
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The company being considered for purchase.
The company and/or investors who own the Target (i.e. parent company or public stockholders)
The company and/or investors seeking to acquire the target.
Financial advisor, legal counsel, accountant, tax advisor, etc.
The Target (or
Company)
The Seller
The Buyer
Deal Team
M&A Lifecycle Overview
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Pre-announcement Announcement Close
Execution
Develop M&A
strategy and
capability to
compliment
corporate
strategy and
business model
Detailed
screening of
potential targets
on the basis of
strategic fit,
cultural fit, and
value potential

Determine
appropriate deal
structure to align
with synergy
targets and
strategic
considerations

Capture
anticipated value
and mitigate risk
by planning and
managing the
combination
process

Assess
valuation,
synergy targets
and risks, and
potential fit
Capture
anticipated value
and mitigate risk
by planning and
managing the
separation/setup
process

Plan & manage people integration
Business Focus
Human Capital Focus
M&A Strategy
Target
Screening
Due
Diligence
Transaction
Execution
Integration Divestiture
Approach
Phases with significant Human Capital activity

Key talent and
workforce
transition
planning
Plan for Day 1
readiness

HR Financial Due
Diligence
HR Operation
Due Diligence
HR Statutory
Diligence
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
Focus Area HR Due Diligence
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HR Due Diligence
People
Culture Process
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The DNA of an organization
HR Due Diligence Result benefits

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 close-
working-groups
Position and relationship analysis
Strengths to highlight, weaknesses to improve,
opportunities to take and threats to avoid.
While due diligence in other area is a standard process for
M&As, 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
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
Source:The Age of Unreason by Charles Handy
Risks that Need to be Uncovered in HR Due Diligence
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Can we align our people?

Can we overcome our
differences?
Can we put these
companies together or be
Stand Alone on Day?
Can we identify potential
liabilities?
Key Skills/Workforce
Segments
Succession Plans
Talent Retention
Employee Relations
Climate
Collective Bargaining
Agreements
Corporate Style
Dominant Player
Hostility
Decision Making Style
Leadership Style
Collaboration Style
Paths to Success in the
Organization

Layoffs
Organization Structure
Differences
Infrastructures
& Systems
HR vendors
Transition Service
Agreements
Benefit Plans & Costs,
Including Post-Retirement
Pay, Philosophy,
Structures & Obligations
Executive Compensation
and Golden Parachutes
Retention and Severance
Plans

People Cultural Structural / Operational Financial
Four Areas of Potential Risks
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.
Approach for HR Due Diligence
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Research Public
Information (if any)
Review proxies, government filings, plan summaries provided to members; Petitions
to unionize and unfair labor practices
Identify /
Request Data
Conduct Data Room
Assessment
Conduct
Interviews
Quantify HR
Prepare Due Diligence
Report
Provide Input to Deal
Negotiations
Review data provided; identify and request additional information as needed
Map critical HR due diligence needs
Interview targets leaders; focus on direction strategies, internal assessment with
competitors, key culture, talent, retention issues, HR delivery model, systems, and
people
Major categories of liability should include, executive comp and Pension, Equity
based Plans, HR operational ongoing run-rate and one-time costs
Produce a short, high level report highlighting all HR liabilities

Provide input to business leaders regarding major liabilities and HR synergy
opportunities
Negotiate employee matters section of the purchase agreement or Transition
Services Agreements
1.
2.
3.
4.
5.
6.
7.
T
i
m
e
l
i
n
e

2

w
e
e
k
s

HR Due Diligence Scope
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K
e
y

A
c
t
i
v
i
t
i
e
s

HR Financial Diligence
Compensation &
Benefits
Organization and
Processes
Performance
Management &
Retention Programs
Statutory Compliance
& Labor Relations
Quantify items
impacting the deal cost
to uncover risks and
liabilities
Identify how the target
structures and delivers
its various reward
programs
Compare the current
state and compatibility
of the two firms overall
strategy for managing
people
Identify the targets
retention strategy for
core skills and
experiences
Assess how the target
manages exposure to
risks and statutory
regulations
Analyze financial
liability through
assessment of: firms:
Employees
Provident fund
scheme
Employees
superannuation
scheme
Payment of gratuity
act
Provision of Bonus
and Leave
encashment
Employee State
Insurance Act
Assess
Compensation Plans,
including competitive
and short-/long-term
incentive analyses
Assess Defined
Benefit Pension
Plans
Assess Defined
Contribution Plans,
including investment
policy
Assess Health &
Welfare Benefits
Program, including
plan design and
funding
Review HR service
delivery and
associated costs
Compare
organizational
structure and
reporting
Asses the
compatibility of HR
policies and
processes

Performance
management strategy
and drivers
Assess key skills /
competencies /
workforce segments
Assess retention
program parameters
(participants, timing,
payout etc.)
Understand potential
severance costs
Asses all HR and pay
related statutory
documentation
Analyze current
employee contracts
and associated risks
Assess Trade Union
relations and
associated risks
HR Operational Diligence
HR Statutory
Diligence
HR Financial
Diligence
Sample Data collection Sheet
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SAMPLE
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 :

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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.
Financial impact on the deal. Non-adherence or
irregularities call for legal issues
Liability to buyer needs to be reflected

Provision of Bonus and Leave encashment
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
HR Operational Diligence - Compensation & Benefits
Identify how the target structures and delivers its various reward programs

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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
Confirm with management the absence of any other benefit obligations such as for
postretirement medical benefits, benefits, or deferred compensation awards.
High level comparison of programs to programs of buyer and to local laws and
regulations
Practice impacts culture and
people hence apart from
financial liability the area also
indirectly reflects culture of the
seller
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.
Assess actual historical benefits costs
High level comparison of programs to programs of Buyer and to local laws and
regulations
seller

HR Operational Diligence - Compensation & Benefits
Identify how the target structures and delivers its various reward programs

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Review Employee Insurance benefits
Medical insurance - coverage, premium and actual utilization data
Accident insurance - coverage, premium and actual utilization data
Life insurance - coverage, premium and actual utilization data
seller

HR Operational Diligence Organization and Processes
Compare the current state and compatibility of the two firms overall strategy for managing people
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Review HR service delivery and associated costs including:
Review current HR delivery model and associated allocated costs
HR budgets and costs
Review HR software, systems and licenses
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
Compare organizational structure and reporting
Review Organization chart
Location wise headcount analysis
Review Grades, levels and titles in the organization
Understand Roles and responsibilities across functions, departments and locations by
reviewing Role specifications
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
Asses the compatibility of HR polices and processes
Review all HR policies (Hire to Exit)
Review entire employee life cycle HR processes and standard operating procedures
(SOPs)
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
HR Operational Diligence - Performance Management & Retention
Programs
Review and analyze current Performance Management System and data for individuals in management roles
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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 sellers
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
HR Statutory Diligence - Statutory Compliance & Labor relations
Assess how the target manages exposure to risks and statutory regulations
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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
ESIC contribution details - Number of employees covered, Copies of returns filed with
the agencies by the companies and outstanding details if any
Filing of Employee income tax returns
Employee Labor Welfare - Copies of returns filed with the agencies by the companies
and outstanding details if any
Number of contractual/outsources labor and details of labor contractors/outsourcing
vendors
Contractual labor (R&A) act - Registration details of the principal employer and
contractor
Details of employer /employee legal case (if any)
Pending issues and correspondence with Labor Commissioners office, factory
inspectors, labor officials etc., if applicable
Legal and financial liability on
buyer
HR Statutory Diligence - Statutory Compliance & Labor relations
Assess how the target manages exposure to risks and statutory regulations
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Review Employee and Labor Contracts:
Employment contract /Job Contract /Labor contract
Minimum wages check as Payment of Wages Act
buyer
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)
buyer
Key Outcomes of Due Diligence

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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
Key lessons learned from due diligence experience
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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.
1.
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.
2.
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
3.
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.
4.
Focus Area - Leadership and Culture in M&A
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View of the Board:
The reasons for the merger are clear but there
may be some problems and I feel uneasy investors
reaction
View of the CEO:

I see the best way forward, I am all for it Now!

Time
C
h
a
n
g
e

C
h
a
n
g
e

View of middle management:
There are just too many things to do over and
above my day job! I cant see how we can do this
View of employees:
Whats 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?
Key employee concerns boil down to five questions once a deal is
announced

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Will my pay
and benefits
change?
Will I have
a job?
Who will I
report to?
Will my title
and status
change?
Do I need to
relocate?
To retain key talent and maintain business continuity, address the Big 5 with a
communications and change management strategy
The impact of culture on M&A
Cultural affects: Lessons Learned
How people work
together
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
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
Decision-making
style
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
Value and beliefs
regarding success
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
Risk tolerance
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
Ability to change
Cultural influences during M&As can have significant impact on value realization
Keys to effective cultural integration
1
Engage the top leadership team in the culture initiative leadership behavior will be the most
powerful driver of the desired future state culture
2
Cultural change should be proactively and deliberately managed, and engrained within the
overall integration program
3
Clearly define and establish a shared understanding of the desired future state culture for the
combined entity
4
Design the future state culture to support the corporate vision, business strategy, and merger
integration objectives
5
In designing the future state culture, dont assume that legacy cultural strengths can
necessarily be combined it is possible they may not be compatible
6
Monitor and measure cultural change over time and adjust cultural interventions as necessary
Leadership Journey
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To achieve integration success, leaders must adapt quickly, demonstrate conviction
and consistently reinforce the vision of the future organization
Employees having positive integration stories cite leadership, communications, management of
employee issues and cultural compatibility as success factors
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
Key Leadership
Behaviors:
Cultural Assessment Activities

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Desktop Review*
Review of values, brand strategy, engagement surveys, organisational
strategy, integration history and current operational challenges and hot spots
1
Culture Diagnosis
Carry out cultural diagnostic to identify ways of working across the
organisation, as well as engagement levels
2
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
3
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
4
Culture Change interventions*
Identify tangible activities to improve ways of working, including quick wins and
priority interventions to address hot spots and conflict areas
5
Biggest positive shift

Dominant Cultural Traits
Red
Tap
e
Botto
m
Line
Business
Horizons/
Visions
Internal
Integration
External
Orientatio
n
Norms of
Behaviou
r
CulturePrint
Tracking future cultural shifts

100
90
80
70
60
50
40
30
20
10
Culture Assessment
Tangible interventions
to improve ways of
working
Identifying cultural
differences
Activities
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

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Rapidly capture cost
and revenue
synergies
Streamline
organization
structure and critical
business processes
Minimize disruption
to customers
Execute an issue-
free transition
Maintain focus and
current business
momentum

Desired Outcomes Typical Results Approach Errors
Execution Errors
Insufficient
Information About
Partner
18%
Never Developed
New Product
8%
Overestimated
Market
16%
Wrong Partner
18%
Environment
Changed
Drastically
28%
Too Far Removed
From Core
Competencies
12%
Leadership
Unclear
18%
Cultures Too
Different
22%
Poor Leadership
23%
Wrong Focus
16%
Poor Integration
21%
Success
40%
Failure
60%
Cost reduction targets not
achieved in 70% of cases
Only 25% earn ROI
Customers notice and are
frustrated by change
First 4 to 8 months productivity
reduces by 50%
30% of
Failures
70% of
Failures
Steps in integration planning
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Human Capital Integration Activities
Set the strategy and
structure for full
integration
Develop plan of action
and milestones
Integrated workplan
Coordinate major
activities for all team work
streams
Establish dependencies
for critical project activities
Create mechanism for
detailed tracking
Provide detailed activities
and timing for the teams
to execute and measure
against
Create mechanism for
status reporting
Integration team
work plans
ID MilestoneID TaskName Finish TeamsWeAreDependentUpon Functional Team MilestoneCategory Duration Start TeamsDependentOnUs TeamsWeAreDependentOnMilestone MilestoneNotes Milestone
2 Program Milestones Mon 1/3/05 0 days Mon 1/3/05
364 Clean RoomMilestones Mon 1/3/05 0 days? Mon 1/3/05
365 CR1 Clean RoomEstablished Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
366 CR2 Clean RoomProcedures and Templates Launched Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
367 CR3 Initial 3 - 5 Analysis Requests Prepared byTeams for Dry-Run Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
368 CR4 Dry-Run of Initial Analysis Requests Submitted and Critiqued Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
369 CR5 Initial Analysis Requests Prepared and Submitted Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
370 CR6 Initial Clean RoomStaffing Plan Prepared Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
371 CR7 Submission of Additional Analysis Requests to Clean RoomComplete Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
372 CR8 Training and Entryof Clean RoomPersonnel Complete Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
373 CR9 Clean RoomAnalyses Complete Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
374 CR10 Logistics Set for Clean RoomRead-Out Sessions Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
375 CR11 Clean RoomOpens Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
376 CR12 Clean RoomRead-Out Sessions Complete Mon 1/3/05 Clean Room 0 days? Mon 1/3/05 yes
1 CompanyC Milestone Map Mon 5/16/05 1 day Mon 5/16/05
20 Marketing Wed 6/15/05 69 days? Thu 3/10/05
21 Mktg1 Working Hypotheses of Business Segments Thu 3/10/05 Business Sales Marketing Consumer and Business Segment Definitions 0 days? Thu 3/10/05 Business Sales &Care yes
27 Mktg7 Develop Menu/ Master List of Potential Retention and Up-Sell/ Cross-Sell
Offers and Products/ Services Portfolio
Fri 3/11/05 Marketing Day1 Retention and
Up-Sell/ Cross-Sell
0 days? Fri 3/11/05 IT,
Development
yes Develop specific
objectives by team
Provide timing and
sequence for project
activities
Link milestones and align
resources
Create team structure and
schedule
Serve as an indicator of
potential project timing
issues

HR Blueprint
Roadmap
Crucial roles for Integration Planning
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Three Crucial Roles for HR
Organisation Design
&Staffing
Change Management &
Communication
HR Functional Integration
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 quickly primary Day 1
concerns?
Level 1, 2 and 3 leadership
Selection criteria (to show clarity /
fairness)
Work closely with Change
Management and Communication
Team(s)
How to alleviate the anxiety among
employees and customers in all
organisations?

What are the major areas that need
Change Management and
Communication during integration?
Employee Experience
Customers / Suppliers
Trade Relations
Investors
Media / PR

How can we minimise customer
/ employee disruption?

What roles do leadership and key
decision makers need to play?
What are the major HR focus
areas during integration?
Compensation and Benefits
Performance Management
Training
Employment Matters /
Compensation & Benefits
HR Service Delivery
International Deployment

What are the objectives of the
HR functional workstreams?

Who are the key integration decision
makers and what is the decision
making process?

What are the key issues for Day 1
readiness?
Organization Design and Staffing: Organization Design
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Leadership
Appointments
Organization
Structure
Operating Model
1 2 3
Assessment
and Slating
Position
Requirements
Outplacement
Final
Selections
Redeployment.
Retention and
Transition
5 6 7 8 4
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.
Step 2: Develop Organization
Structure
Create guidelines for organization
(spans of control, leveling, etc.)
Determine roles and positions
required to support the Buyer &
Target operating model
Define reporting relationships
Analyze staffing requirements by
function, location and position
Identify and document current
state positions targeted for
reduction

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
Step 3: Determine Leadership
Appointments
Create accelerated leadership
appointment process
Determine Level 1 leadership
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
Organization Design and Staffing: Employee Selection
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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

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.
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

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

Leadership
Alignment
Org
Structure
Operating
Model
1 2 3
Assessment
and Slating
Position
Requirements
Outplacement
Final
Selections
Redeployment,
Retention and
Transition
5 6 7 8 4
Organization Design and Selection: Employee Transition
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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
The workforce transition approach facilitates key steps and strategies to stabilize the new organization
after final selection decisions.
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
Leadership
Alignment
Org
Structure
Operating
Model
1 2 3
Assessment
and Slating
Position
Requirements
Outplacement
Final
Selections
Redeployment,
Retention and
Transition
5 6 7 8 4
Crucial roles for HR in Integration Planning
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Organisation Design
&Staffing
Change Management &
Communication
integration?
Post Day 1:
selection

concerns?
fairness)
Team(s)
organisations?

Employee Experience
Trade Relations
Investors
Media / PR


Training
HR Service Delivery


making process?

readiness?
Employee Experience & Change Management Strategies
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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.
Culture
Assessment
& Planning
Leadership
& Manager
Alignment

Communication
& Engagement
Organizational
Readiness and
Change
Assessment
In the context of a merger, change management also encompasses the organizations employees and
leaders readiness to accept, engage, and demonstrate commitment to the new organization.
Training
Change
Management
Strategy
Deloitte 38
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:
Define the need for change in
a merger.
Create a clear picture and
enthusiasm
Articulate and endorse the
vision.
Let leaders cascade
messages
Develop workforce transition
and communication plan
Clearly communicate the
project sponsor to help
remove roadblocks
Put on a roadshow
presentation for leaders
Create Leadership Alignment
Proactively facilitate cross
functional sessions
Create and aggressively
communicate a dashboard
that highlights the timelines to
avoid conflicts
Include a detailed change
management and
communication plan
Constantly keep checking the
maturity
1. Getting everyone on Board 2. Make sure someone is
removing the roadblocks
3. Check the rear view mirror
Define the medium of
communication depending on
the level of stakeholders
Hold Project kick off
sessions to clearly spell
out the expectations
and objectives
Need to communicate
using metaphors &
analogies to describe
strategic direction
Revisit and reinforce
roles and
responsibilities regularly
Communicate key
changes to systems,
processes and
organizational structure
Communicate how the
roles and
responsibilities will
change
Create role impact
guide
Create change networks,
a multi directional
communication channel
gives a better feel about
the merger
Provide monitoring and
feedback mechanisms
4. Put the horse before the
cart
5. Prepare for detours
6. Ask for directions
along the way

Create clear messages
and responsibilities for all
employees
7. Get people ready for
the transition

Create necessary FAQs
and help desks for
employees
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
Best Practices in Communication- Hit the Road
Provide sufficient post
merger support by
communicating purpose
Repeat communication
Communicate and celebrate
quick success
Reiterate the benefits of the
new phase through effective
channels of communication
Managing expectations is
critical
Develop change agents and
enable them communicate
the
8. Stay on the right tracks

9. Anticipate and mitigate
resistance
10. Identify and deal with and
defuse unanticipated
impacts
Planning the timelines for the merger, enable
organizations to successfully transition to the new
phase
Best Practices in Communication- Its a Journey and not a
Destination
Communication is a very important and active role in an integration
Deloitte 42
Articulate
Repeat
Reiterate
Articulate the need for change, vision
and purpose to the organization LOUD
and CLEAR
Aim to create a repeatable model for
Mergers and Acquisitions. Keep
REPEATING the communication
during the process
Create enough COMMUNICATION
CHANNELS to help reiterate the
purpose
Crucial roles for HR in Integration Planning
Deloitte 43
Organisation Design
&Staffing
Change Management &
Communication
integration?
Post Day 1:
selection
Retention strategies

concerns?
fairness)
Team(s)
organisations?

Employee Experience
Trade Relations
Investors
Media / PR


Training
HR Service Delivery


making process?

readiness?
HR Functional Integration Typical Structure and Scope
Deloitte 44
HR Functional PMO
Compensation
HR Service
Delivery, HRIS &
Payroll
Benefits & Policies
Performance
Management
Staffing &
Recruiting
Onboarding Training Labor Relations
Core data migration /
conversion
Payroll integration /
separation
Vendor management
Compensation analysis
Job leveling
ST and LT Incentive /
Equity plans
Comparative benefit
analysis
Policy analysis and
development
Program administration
Open enrollment
Program design
(linkage with company
objectives)
Unified process and
infrastructure
Recruiting strategy
Process and systems
integration / separation

Needs assessment
Learning Management
integration / separation
Development of
programs
Collective Bargaining
Agreements
Works Councils and
consultation
Employment contracts
New Hire requirements
and processing
Employee orientation
Global Coordination
Synergy Planning
HR Functional Stakeholders
Deloitte 45
HR
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 Leads:
What do I need to know about
supporting colleagues from
both legacy organizations?
Procurement:
How will employees make
purchases?
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?
Finance:
Are employees mapped to cost
centers?
How will approval levels be set?
IT:
Are the downstream
application requirements
able to be met?
Planning the HR Functional integration / separation requires alignment amongst stakeholders who rely on
HR data and services.
Sales:
How will we administer sales
compensation?
How do employees get business
cards?
Deloittes eminence in M&A Integration has resulted in several
publications, cutting edge thought ware and top recognition
Deloitte 46

Year of Living Strategically
Beyond Human Resources Integration. Is a merger the right time to
launch a transformation?
The Overconfidence Dilemma: Why Companies Exaggerate Their
M&A Skills
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 post-
merger integration
Shortlist of publications
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 theyre sometimes true)
Publications are available free of cost for
Deloitte clients. The M&A library can be
accessed at
http://www.deloitte.com/US/M&ALibrary

Top recognition
Punit Renjen, the leader of the Deloittes
Mergers and Acquisition Services, was
recognized by Consulting Magazine as one
of the Top 25 Consultants in 2007.
This recognition reflects our clients
endorsement of Punits effective leadership
in bring the best of Deloittes M&A
Integration services to them
What our Research says ..
Deloitte 47
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? ..
d
Eight customer-focused
priorities emerged as
important enablers of
successful growth
associated with M&A
transactions. (Ref: Figure 1)
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 isnt 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
companys management systems, its underlying ideology, and in its
relationship with employees (for example, employee participation,
working hours, pay, health and social security benefits, etc.)
Case Studies
Deloitte 48
Deal Rationale
Lenovo entered into a strategic
alliance with IBM where IBM
remained the preferred services and
customer facing provider and Lenovo
would act as IBMs preferred PC
supplier.
The deal rationale includes gaining
synergies from:
Complementary product lines
Extended customer base
Varied geographical presence
Supply chain and distribution
efficiencies
Combined intellectual property
Integration Approach
Lenovos integration approach
factored in IBMs initiatives and
developed a timeline to complete the
biggest cross border acquisition by a
Chinese company.
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.

Key Lessons
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
EFFECTIVE COMMUNICATION, CUSTOMER FOCUS.
Case Studies
Deloitte 49
LEADERSHIP COMMITMENT, EMPLOYEE ENGAGEMENT, SYNERGY FOCUS
Deal Rationale Integration Approach Key Lessons
Start targeting larger ITES deals
Expand the service footprint by
getting some of the niche service
offerings
Expand the geographical coverage
of business

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

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

Case Studies
Deloitte 50
Deal Rationale
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
Integration Approach
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
CULTURE CONFLICT NOT ADDRESSED, INEFFECTIVE TALENT RETENTION.
Deloitte 51
How do the expectations we have of leaders change during the
integration?
How to prepare to drive change and lead employees during the
transition?

It is not the strongest species that survive,
nor the most intelligent, but the ones who are
most responsive to change

..Charles Darwin
52 Deloitte
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which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche
Tohmatsu Limited and its member firms.

This material prepared by Deloitte Touche Tohmatsu India Private Limited (DTTIPL) is intended to provide general information on a particular subject or
subjects and are not an exhaustive treatment of such subject(s).Further, the views and opinions expressed herein are the subj ective views and opinions of
DTTIPL based on such parameters and analyses which in its opinion are relevant to the subject.
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Human Capital Focus Areas in M&A

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