Given the current environment across the U.S., latest acquisitions and takeovers by companies — including, but not limited to, big tech and startups — have not only led to numerous layoffs1, but will continue to present critical problems for human capital value and organizational performance in the near future.
Immediately after massive dismissals by recently-acquired tech firms such as the cyber-security specialist BitSight1 and the formerly major Yahoo2, leaders from both companies’ surviving workforce are now expected to achieve similar productivity levels despite the smaller workforce (Marks & De Meuse, 2005). Unlikely considering survivors will be less inclined to assimilate layoffs in the most appropriate manner, as they start conceiving that the recent acquisition ended up dismissing lots of co-workers. Additionally, where downsizing will likely provoke an unavoidable scenario of workload saturation absorbed by the respective surviving workforce, a skills gap is almost always born where these sub-groups tend to be insufficiently trained to overcome either some specific group dynamics or individual interferences, which will probably end up affecting both the collective creativity and decision-making processes (Marks & De Meuse, 2005, p.24).
The authors point out that resulting co-workers’ relationships might also get severely damaged as well, given that each professional will probably start to reduce cooperation and data exchange with one another (Cascio, 2009, p.17). As a result, not only will individuals and teams attempt to individually stand out in the eyes of superiors, but managers will likely be pressured to achieve results through internal competition that pits workers in competition with each other, by exclusively aiming for sub-group results instead of mutual improvement (Marks & De Meuse, 2005), driving down the collaboration and synergies required for the outsized performance and outcomes that companies are actually after.
Compounding this effect, where BitSight and Yahoo have not communicated effectively with their workforce, survivors’ perceptions and psychological safety will become substantially fragile both with regard to job security and understanding their place in the new company (Aggarwal-Gupta & Kumar, 2010). In fact, a quantitative-research study — surveyed 292 working executives — found that most employees gave far more importance to communication effectiveness with immediate supervisors and top managers, in the midst of big change, than general announcements or institutional briefings (Aggarwal-Gupta & Kumar, 2010). As a result, workers experience a loss of confidence towards top managers, who could not satisfactorily explain why they made the layoff decision instead of having taken a more thoughtful course of action (Marks & De Meuse, 2005). That is why, right after an acquisition, the new company may encounter risk avoidance by its workforce — namely, surviving employees tend to do their jobs in the most conservative manner in order not to take any risks, just when thinking out of the box is urgently required (Marks & De Meuse, 2005).
Bach et al. (2021) carried out a secondary-data study to understand how acquisitions could affect worker mental health. Having researched Swedish acquisitions taken place between 2007 and 2015, the authors were able to link all workers to their individual health outcomes (the country has a universal healthcare system and central administers have permanent contact with healthcare providers) and, thus, count the proportion of cases that presented each mental situation — among these, stress and anxiety, depression diagnoses, hospital visits, psychiatric medication usage and dosages, and death and suicide records (Bach et al., 2021). Some findings were even alarming: where acquiring firms are supposed to be the “winners” of such acquisition, the authors registered 8% increase in depression diagnoses — from both companies — following the takeover. Additionally, acquiring-firm cases presented an increased deterioration of their mental health by 2% relative to the period before the acquisition (Bach et al., 2021).
To make matters worse, in this information age, where companies are information engines dependent on their human capital for desired performance, Cascio (2009) postulates that human relationships and social networks within these companies generate a collective learning and knowledge – known as company memory. When acquisitions are mismanaged, the transaction has the potential to absolutely gut, not only employee health, safety, security – and corresponding performance and productivity – but also company memory, which, in turn, jeopardizes future human capital value (ie expertise, capabilities, innovation, etc) as well as the future business opportunities and outcomes that would otherwise result from an acquisition’s desired future human capital performance (Cascio, 2009).
We can see how all the above negative effects of a mismanaged acquisition come together in the very real story of BenQ’s acquisition of Siemens. According to Cheng & Seeger (2012), when BenQ — the Taiwanese electronic company vendor — acquired the German money-losing division of Siemens, the cultural clash between the two countries’ workforces ended up being notoriously drastic. Germans were more independent towards workflow organization — preferring freedom and challenge — whereas the Taiwanese have a stronger sense of organizational belonging (Cheng & Seeger, 2012). Furthermore, where Taiwanese felt more at ease within a solid hierarchical organization — with omniscient supervisors who constantly made decisions — Germans preferred a more democratic and participatory way of organization (Cheng & Seeger, 2012).
Many organizational and operational obstacles caused by the above culture clash resulted in financial losses the likes of which no one saw coming. The BenQ – Siemens acquisition experienced human capital and financial capital depreciation from the very first year. More precisely, Siemens took the human capital bullet with 1,900 layoffs by the end of 20065, while BenQ’s annual report informed a domestic sales drop from $8,109,192 in 2005 to $5,472,620 by 2006, with an after-tax loss of NT$27.6 billion (BenQ Corporation, 2007). Then, in the months following, the Taiwanese firm’s stock performance dropped -52.18% from $37.10 in January 20066 to $19.36 by May 2006.
With a total of 8,468 M&A transactions in 2022 alone, according to White & Case,4 you have to question how many of them have been mismanaged, causing businesses to lose millions in company value resulting from damage to human capital and organizational performance
Fast forward to today. Some of the largest and most well known acquisitions under way for 2022/2023 (eg Microsoft’s acquisitions of Activision and Nuance, Broadcom’s acquisition of VMWare, Oracle’s acquisition of Cerner, Adobe’s acquisition of Figma) have the potential to create the desired value for the business, or destroy it. Their fate all comes down to how well the transaction (or more accurately, transformation) is managed by their respective leaders.
More specifically, it matters how early and how involved Human Resources is in the management of the transformation. That is, if the above analysis is any indication, every M&A transformation is an acquihire, in that the transformation will only be successful if your human capital has bought in to the transformation. Without your human capital one hundred percent onboard with the transformation, the respective companies will not realize the value creation that made them decide to proceed with the transformation in the first place.
Authored and Researched by Ariel Murdocca
Commissioned and Edited by Hason Greene
References
Aggarwal-Gupta, M., & Kumar, R. (2010). Look who’s talking! Impact of communication relationship satisfaction on justice perceptions. Vikalpa, 35(3), 55-66.
Bach, L., Baghai, R., Bos, M., & Silva, R. (2021). How do acquisitions affect the mental health of employees?. Swedish House of Finance Research Paper, (21-21).
Cartwright, S., Cartwright, S., & Cooper, C. L. (1996). Managing mergers, acquisitions, and strategic alliances:
Integrating people and cultures. Routledge.
Cascio, W. F. (2009). Employment downsizing and its alternatives: Strategies for long-term success. SHRM Foundation’s Effective Practice Guidelines Series.
Cheng, S. S., & Seeger, M. W. (2012). Cultural differences and communication issues in international mergers and acquisitions: A case study of BenQ debacle. International Journal of Business and Social Science, 3(3).
De Meuse, K., & Marks, M. L. (Eds.). (2003). Resizing the organization: Managing layoffs, divestitures, and closings (Vol. 14). John Wiley & Sons.
Marks, M. L., & De Meuse, K. P. (2005). Resizing the Organization:: Maximizing the Gain While Minimizing the Pain of Layoffs, Divestitures, and Closings. Organizational Dynamics, 34(1), 19-35.
Sources:
- DW staff (2006). BenQ job cuts. DW. https://www.dw.com/en/benq-mobile-to-axe-two-thirds-of-workforce-at-german-unit/a-2209322