Four IT workforce dimensions to assess before your next M&A deal closes

Authors: Seth Van Winkle, McCree Lake and Daniel McCarthy.

Global M&A transactions are projected to exceed $3 trillion in 2017 as companies continue on the quest for growth. However, completing a merger or acquisition deal is a complex process, and there are a few critical activities necessary to optimize value capture of M&A activity. One area that is often overlooked is the IT workforce.

The capabilities of the IT workforce can play a key role in determining the success of a deal, whether an organization is targeting a merger, acquisition, divestiture or alliance. Technology leaders and teams hold major influences in terms of setting the right approach, managing the technology strategy, and ultimately in extracting maximum value from the deal. There are four workforce dimensions to assess at pace and at scale that can create significant value arbitrage and mitigate key risks in the technology components of M&A activity.

Manage attrition risk

A key risk of M&A for the IT organization is losing critical talent through the course of the announcement and transformation. Research from Harvard Business Review has suggested that attrition can range anywhere from 10% to 20% of key executives following an acquisition. People, particularly the organization’s high performers or those with unique skills, are likely to be anxious and may more readily seek opportunities. Leaders must understand the highest-risk and highest-impact areas to mitigate turnover. There are three key steps in this process.

1. Map critical technology capabilities that support core enterprise activities as well as those technologies that support critical business/market-facing activities.
2. Assess the people in the organization most at risk of attrition relative to talent marketplace availability (within the organization or external). The analysis can be done at different depths of complexity but the general approach is to select key predictors of attrition, and model using basic statistical approaches, and then segment at-risk employee populations based on outcomes. Accenture research suggests that many organizations continue to use traditional methodologies to manage the complex change associated with M&A activities — project management software and employee surveys. Predictive modeling from analytics, on the other hand, can offer fresh and data-driven perspectives to more clearly and successfully navigate change. Accenture Strategy’s Change Tracking tool is an example of how executives can plan change and assess risk based on benchmarking against other complex transformation programs.
3. Compare the critical areas where there is high attrition risk with minimal pipeline talent. Knowing this information early in the process will allow leaders to target those with key skills and knowledge supporting critical capabilities who would be hard to replace. In a recent M&A transaction, Accenture observed an increase in attrition across core teams within weeks of a rumor about an upcoming divestiture and had to scramble a focused effort to identify and retain key process and systems knowledge owners.

Structure the surge

There is typically a large bubble of work that has to be accomplished as a result of M&A, divestitures or alliances. It’s important for leaders to think about the “now vs. later” workforce and configure the bubble around two dimensions. First, build the skills that will be required to run the organization in the future. One way that organizations frequently accomplish this is to leverage a partner or shared services unit to provide the bulk of transition resources while focusing internal resources on key capabilities and new investments. The transaction is a natural shifting point and the reconfiguration can be carried forward even after the work finishes.

Second, evaluate how to progressively staff the work over time ensuring you have the right balance of suppliers and internal talent. There are many opportunities to flex your IT talent model in terms of how the organization ramps up specific recruiting efforts, creatively solves problems for key workforce groups, and determines the retained vs. transitional roles based on the structural technology changes. One aspect of this type of planning that organizations frequently miss is an end-to-end talent life-cycle plan for the deal. The business needs to have a detailed plan for the hiring pipeline requirements, expected attrition, and engagement/retention (including landing spots for key internal resources aiding in the project activity).

Optimize the future

M&A doesn’t necessarily mean that the work of the business or overarching strategies cease to be important. Evaluating and assessing the opportunities to leverage M&A as a pivot point to deliver on long-term business strategies and objectives is crucial. Target the evaluation to identify specific initiatives for teams to change their way of working — focusing on digital collaboration, fluidly moving in and out of modular teams, or leveraging crowdsourcing and talent marketplaces to staff commodity or highly specialized activities. Additionally, highlight the key capabilities of both IT organizations that are leading practice and can be scaled. As a specific example, note that opportunities abound for cloud transformation during M&A. The movement to the cloud requires a significant organizational shift to support new architectures (revamped governance, capabilities, skill sets). This shift can be difficult to justify in a stable environment. However, the disruption of a merger or divestiture provides the opportunity to evaluate the capabilities that an organization can develop.

Shape culture

Leaders often worry about the cultural considerations of M&A deals and alliances — and rightly so. The number of highly engaged employees sinks to as low as 5% of the workforce up to two years after an M&A transaction. IT needs to think about the cultural impacts not only between the organizations but also the way in which the technology functions have traditionally been organized and interacted with the business. For example, if a parent company has a very centralized approach to IT but the acquired organization is federated, the delivery challenges don’t just affect IT — they affect business actors on both sides of the deal. Leaders should evaluate IT culture in the following areas: mission, mindsets and behaviors, relationships, and blended interaction maturity. A new organizational culture can be crafted over time in a way to optimize value from the transaction — in ways that are often forgotten in more traditional financial analysis of M&As.

The technology function is increasingly more closely evaluated given the long-term potential of systems integrations to derail big deals, but it’s important not to just get caught up in the details of the technology. Business and IT leaders must make sure to home in on protecting the key people, capabilities and skills needed to make the M&A deal successful both in the short and long term. Additionally, it’s crucial to view a merger or acquisition as an opportunity to pivot to new ways of working, as well as to optimize and future-proof the IT organization.

This article is the first in a series of four that will explore the IT workforce implications and opportunities of M&A activity. Stay tuned for the next post on “Seizing the Value of the Surge: How to Use M&A to Reconstruct your IT Organization.”