Knowledge Center

How To Manage A Takeover Without Losing Your Brains

By Timothy Bentley

Danger stalks your organization whenever it acquires an information technology or other knowledge-based company. There's a serious risk you will end up handcuffed to its costly structure, while its valuable brain power leaks away.

It's urgent that everyone in senior management understands that payroll integration is not the most valuable ability they can bring to the table. Wisdom about working with people is where you can add the most value, helping them attract valued but skittish employees.

One of the more challenging tasks is to mentor senior managers in how to retain and enhance "intellectual assets" -- those capable human beings who work for them. Effectiveness here requires more of them than stellar task management. They have to be leaders.

A valuable contribution you can make is to help leaders recognize the nature of their purchase. Buy a factory, and you own a process as efficient tomorrow as yesterday. But invest in an info-tech or knowledge-based organization, and your corporate shopping basket is crammed with assets which can be retained only through excellent leadership.

Among these invisible commodities is the enthusiasm of highly creative people. That represents your competitive edge, yet it's a fragile item. Its shelf life depends on intangibles like personal loyalty.

Another aspect of your purchase is the acquired company's credibility with its customers. Because they don't know you directly, their trust in your organization is usually mediated through ongoing relationships with a handful of your new employees, typically the folks in marketing, sales, and service. "Customer intimacy" is the latest buzzword here.

From the moment of acquisition, customers will be watching closely to see how you deal with their contacts. If those employees feel that your organization is treating them in a cavalier manner, the news will spread like wildfire.

But most importantly, you're acquiring intellectual capital: a vast sea of knowledge and capabilities impossible to reduce to files or floppies. The entire story of how your newly acquired organization spins its magic resides within the minds of individual human beings -- some of whom your management may regard as currently pampered.

And that may place your organization in a serious bind. Is there a way to de-pamper without losing those employee's loyalty? (Flunk that test, and you might as well incinerate the new business plan.)

Here's a real-life example. A technical firm we'll call "Investcorp" recently purchased "Smalltech", a promising company with an excellent product, at a manageable price.

The problem: Smalltech's staff are sophisticated, well-educated, and in-demand. Even during hard times, they remained loyal to their organization, not only because it provided income but because they enjoyed a generous "virtual income" (the invisible benefits of a company culture).

For instance, employees relished the chance to work on leading-edge projects. Further, their leaders reminded them how much they appreciated their work. And because no one was hidden away in a private office, they had frequent access to the executive group.

In addition, these employees enjoyed excellent free health benefits. They were even encouraged to help themselves to generous snacks in the kitchen -- whether in the midst of a harried day or when burning the midnight oil on an urgent project.

In other words, Smalltech retained its intellectual capital because its leaders understood the power of both high tech and "high touch".

Investcorp's culture viewed its people less like colleagues, more like hired hands.

It takes time to build a relationship of trust with new employees, but in no time the people at Smalltech were reading the writing on the wall. If Investcorp should decide to cut the fat from their organization, they knew how long their kitchen would last -- not to mention other crucial aspects of their virtual income.

As you might surmise, even though Investcorp had guaranteed their salaries, some of Smalltech's best brains began to migrate within a few weeks to greener pastures, better benefits, warmer climes.

Such losses can be disastrous but are not inevitable. Here are some hints for your chief executives in an age when confident, capable staff can write their own ticket anywhere.

1: Prepare in advance by developing organizational culture

If, once upon a time, employees respected their employers simply because they provided jobs, today's issue is the nature of those jobs. Particularly in the knowledge industries, the key to retaining high-value staff is a culture that actively rewards qualities like individuality, creativity, and credibility.

Such a culture does not occur by accident. Even if your organization has officially identified those values, it will require considerable attention -- pre-acquisition -- to make sure they are well-communicated and operational.

Happily, the management of culture is increasingly viewed as crucial, highly stimulating, specialized, and profits-enhancing. It has attracted an astute new generation of managers. Position yourself to make significant contribution in this area, and you can prepare the ground for profitable acquisitions.

For people in staff positions there's a delicious bottom-line corollary. The climate your organization provides for your employees directly influences how well they take care of your customers. And that leads to loyalty and repeat business.

2: Focus on genuine business needs

If your executive group are still signing every check and micro-managing the sales, marketing, development, and HR people, it's time for them to commit to the leaderly art of delegation. If they want your organization to grow, there's only one viable strategy: to hire excellent staff, give them clear guidelines, and get out of their way.

That frees them up to add value in ways that only leaders can do: honing and communicating their vision for the organization, developing its style, and enriching those invaluable relationships with customers, suppliers, government, employees, and colleagues.

3: Guide the interpersonal aspects of the acquisition

Strategy-savvy leaders recognize that the integration of two organizations is too sensitive a job to hand off to a COO or CFO whose focus may be the management of numbers.

The key to a successful acquisition is to manage the soft-side aspects, devoting to them as much careful attention as goes to issues like finance and lines of command.

It's crucial for senior executives to remain personally involved throughout the integration process, particularly in communication with the new staff. Developing personal credibility with these people is impossible to delegate, and it is one of the strongest factors propelling an effective transition.

4: Talk with the people

Leaders should never forget that during an acquisition, fear moves to the foreground consciousness of their new employees. But there's a simple cure for terror: communication.

Precisely what they tell their new employees is not nearly as important as the fact that they make the effort. "I don't have much information for you yet," is far more effective and appealing than silence. Last year an incoming president delayed addressing the staff of his large telecom firm for many months, a move which cost him valuable loyalty and productivity.

If the leadership are considering making changes in compensation, for instance, whether virtual or cash, it's useful to talk about it with those affected. There may be solutions no one could recognize in isolation.

Don't hide out, even if there's bad news. Your leaders will earn immediate dividends if they communicate frequently and openly with new employees. They're wise to start with two key groups: those who have frequent contact with customers and other industry networks, and those who possess the organization's unique intellectual capital.

5: Get smart support

Executives on the verge of an acquisition should be warned: do not try this alone.

Particularly if they're the control-and-command type, more comfortable with deal-making than relationship-building, they know they need all the support they can get. CEOs from a dozen high tech firms recently identified "managing for growth" as a crucial learning need.

They'll find that a whole network of supports will help them make the most of this opportunity: HR professionals can offer them invaluable guidance. External coaches and consultants can provide an objective perspective. And the executives of the acquired company can share an unparalleled cache of wisdom about managing relationships with valued employees.

No acquisition will succeed without sophisticated research, excellent instincts, and adequate capital. But in the knowledge-based industries, leaders must exceed these norms.

They will create lasting value only to the extent that they develop sophisticated people skills, the ability to collaborate with skilled professionals, a commitment to communication, and high respect for the value of intellectual capital.

Timothy Bentley is Chief Operating Officer of Panoramic Feedback.

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