Are you diving into the deep end of your talent pool during M&A?

Matthew McCreight

Schaffer Consulting

As part of our partnerships &amp, licensing focus month, Matthew McCreight from Schaffer Consulting, discusses the importance of pharma maintaining talent during mergers and acquisitions (M&amp,A).

Why do so few companies emerge from mergers or acquisitions with a talent pool that is deeper than when they started?

It should be easy to make 1 + 1 = 2, or at least 1.5, when it comes to bringing the best talent of both organizations together. Unfortunately while talent is usually at the top of the list of strategic objectives at the start of a merger, it rarely is still there at the end. Few CEOs list the creation of the most talented group of managers or technical leaders in the industry as one of the crowning achievements of months of post-merger integration efforts.

What goes wrong between the strategic aspirations and the actual results? Call it “merger myopia.” Under pressure to deliver the numbers or simply survive the overwhelming amount of activity that comes with mergers, many leaders focus their attention so narrowly on the next set of milestones that they lose sight of strategic imperatives like talent that do not fit neatly into a PMO-driven process. Addressing the roller-coaster ride of issues and emotions inherent in keeping talent is a difficult to manage process – people are involved! Decisions or communications that may motivate or inspire one person to stay can also convince another high potential manager to abandon ship.

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“Addressing the roller-coaster ride of issues and emotions inherent in keeping talent is a difficult to manage process – people are involved!”

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Talent outflow happens even when leaders are acting with the best of intentions. Consider the case of Eagle Star, based in the United Kingdom:

In 1999, Eagle Star was acquired by ZFS as part of one of the largest mergers to date in the insurance industry. Eagle Star was also in the midst of a major financial turnaround and faced the need to shed 2000 jobs (20% of the work force) in order to restore profitability. After much debate, the leadership team of this 100-year-old company decided to make these reductions in a way that would be seen as fair to the work force (and avoid potential unrest or damage to the company’s high profile brand). Their solution – to offer a generous incentive to all staff to take “voluntary redundancy” rather than be fired that amounted to many months’ additional compensation.

One of the unintended consequences of the offer of voluntary redundancy was that there was a rapid outflow of talent from the company – talent that was essential to leading the financial turnaround. For example, among a special internal team charged with driving major cost savings and process improvement, 80% took the offer and left the company. As a result, company leadership had to recruit and train a new team for this most important of jobs, losing months of crucial momentum.

Another reason a company’s talent pool can become shallower during M&amp,A may lie with the way the issue is approached – as something “not to be lost”. Many leaders view their job during M&amp,A as retaining talent, i.e., not letting people “jump ship”.

While this is certainly an important issue, the real opportunity is to use M&amp,A as a time to multiply talent – so the company creates a much stronger and deeper pool of talent through the process.

When this is the goal, the role and priorities of company leaders take on an entirely different energy – one that help can keep merger myopia from taking over. A recent example of this was when Merck and Schering Plough joined to create a $41 billion organization in 2009:

Despite the size and complexity of the merger, senior leaders in both companies focused from the start on the need to keep top talent through the long process of bringing two companies together. They felt this was essential if the two companies were to fulfill the potential for growth that was the reason for the merger.

Adam Schechter, President of Merck’s Global Pharmaceutical Business and simultaneously leader of the integration of Merck and Schering-Plough, made one of his key goals not just to retain top talent, but to use the integration process as an opportunity to develop talent across the company. He devoted significant time and effort to meeting with talent, reaching out proactively, encouraging them, and involving them in taking key roles in the integration whenever possible. He also cascaded this process – asking others in leadership positions to champion talent expansion as well as retention in the same proactive way.

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“…both companies focused from the start on the need to keep top talent through the long process of bringing two companies together.”

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The results from this intense focus on talent were unmistakable – with exceptionally high-retention rates among top talent, Merck and Schering-Plough became one of the fastest, most successful integrations in the industry, and perhaps, most importantly, a company driving ahead full-speed toward its strategic future.

The difference is profound – from an 80% outflow of key talent in one company to the retention of almost all top talent in another.

So if you want to be the leader touting the creation of best-in-class talent at the end of the next acquisition, start by aiming to do more than just retaining talent, insist on multiplying talent at every stage of M&amp,A. And then focus your time and efforts accordingly. It may not be easy, but it will be well worth it.

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About the author:

Matthew McCreight is a Managing Partner at Schaffer Consulting. A member of the firm for 23 years, Matthew holds a MPPM from Yale School of Management. Schaffer Consulting has an extensive focus on the pharmaceutical industry – working with leaders and their organizations to achieve strategic success in areas such as complexity reduction, organic growth, M&amp,A and large-scale innovation. Recent clients include Merck, B+L, Shire, J&amp,J, Celgene and others in the industry as well as health care organizations such as Stanford Hospital, Provident Health Services, and MD Anderson Cancer Center. More on the firm can be found at www.schafferresults.com.

How can pharma maintain talent through M&amp,A?