10-point checklist for HR and payroll during M&A and divestment

10 point checklist for HR and payroll during M&A and divestment

In the first blog in this series we offered some ‘Expert tips to ensure payroll continuity during major change’. Here we offer advice on how to manage and maintain payroll during two specific scenarios; a merger and acquisition (M&A) and a business divestment.

Before we go into detail, take a moment to review this checklist to get you thinking.

Your 10-point checklist when undertaking M&A or divestment

  • Set up a working party to manage the change. Ideally, one that’s part of a company-wide task force.
  • Consider at an early stage if you have the IT skills in-house to bring together (or separate in the case of divestment) a range of diverse systems effectively. If not you should maybe consider partnering with a specialist firm.
  • Understand what HR resources you have and plug gaps with consultants. You need people dedicated to the project. This will save a great deal of time, money and worry from the start.
  • Set up temporary service agreements with parent companies / service providers. This is where extra time is needed to bridge gaps.
  • Audit the current HR infrastructure, including platforms and systems in all locations. Some may have modern Enterprise Resource Planning (ERP) systems, while others may be running HR on spreadsheets.
  • Map country-specific HR processes. Include employee contracts, terms of employment, legislative requirements, etc. This is so that these can be managed effectively.
  • Prioritize payroll. Payroll systems that work without a hitch are vital for employee engagement and to keep you compliant.
  • Ensure HR and payroll teams are well trained in using the new systems.
  • Establish a change management strategy to include effective employee communication, training and continued engagement post event.
  • Build in agility for the future.

What we know

Many of the organizations we work with are expanding through M&A or they’re divesting a business so it becomes a standalone operation. Both groups have different challenges and some might say divestment is a greater challenge.

With divestment, the now standalone business needs to very quickly finance and build an entire HR and payroll infrastructure. This is far from a simple task and comes at a time when there are very many more resource pressures on the business.

Our role is to design HR and payroll systems, which are built to the stipulations of the separation agreement. Let’s take a closer look at the two different groups.

Scenario one : Organizations with complex HR and payroll infrastructures due to M&A

These organizations are often entering new markets, expanding globally or coming together to combat increased competition. Usually they’re established businesses, each with their own HR, payroll and data teams and processes. It’s common for there to be reluctance from all sides to relinquish their HR team or systems.

The urgency is less than with a divestment because the functionality for each business remains. However, the complexity and lack of workforce visibility can start to impact the business that is a concern.

For us, integrating the processes for these merged businesses into a single standardized global process is relatively straightforward as we have many years’ experience. We wouldn’t recommend a client to try and manage this themselves as a one-off project!

To get quick results for clients, we’ve developed fast track deployment methodologies. These combine best practice models with pre-configured templates. Solutions such as NGA cleaHRsky and the newly launched NGA FastTrack HR and payroll are prime examples. Both can be up and running in less than three months.

Project examples

Even understanding what systems exist and knowing where and how data is stored can be a major challenge. It’s not atypical for there to be up to 200 HR and payroll systems within a merged business. This was the case with Thyssenkrupp when we started working with the teams there several years ago.

The Thyssenkrupp project is a great example of the complexity that comes after hundreds of M&As over the years. However, this is by no means unique. We’re currently on a major HR transformation journey together. Before we could go anywhere we first had to unravel decades of complexity.

The end goal is to have streamlined global HR operations for 150,000 employees in all Thyssenkrupp locations outside of Germany. The standardized HR platform will support employees who currently have HR administered via several hundred independent HR systems. On top of that, we will manage the payroll for 50,000 employees in countries where the payroll complexity is high, via NGA HR’s BPO Payroll Services.

Single source data for performance and compliance

Single source data provides managers with workforce visibility previously not possible. Thorough analysis of this accurate data source can help companies plan smartly.

Without unifying the processes and integrating these with payroll and workforce systems, it would be impossible for businesses like ThyssenKrupp to achieve overriding objectives to act as a single integrated companies.

Another global company we’re working with initially faced a lot of internal resistance. Each merged business still operates very independently and so wanted to keep all business processes in silos.

However, the group HR director was concerned that there would be serious flight risks and future skills gaps if they could not fully understand their workforce. Consequently, this lack of visibility left them open to the dangers of compliance failures. The gender pay gap being one such example.

We helped build a business case for workforce agility and compliance. From this they came to realize the benefits of integrating multiple HR and payroll processes. This was to not only benefit from economies of scale, but also to nurture a unified culture across the group. By doing so best practices can be shared and a unified approach implemented.

The major task for all organizations following an M&A is to merge the people processes. This challenge is mammoth, high-risk and essential. Very few have the skills in-house to manage this and so pull in the skills of partners such as NGA HR.

Scenario two: Businesses requiring HR and payroll infrastructure separation and rebuild

The flip side of M&A is divestment. This is happening more and more as business groups sell their less profitable companies to focus on growth areas. Separating HR and payroll processes is far more challenging than standardizing and this is where NGA HR’s strengths lie.

Once the decision has been made to sell, the board of the parent company wants rid. This need for speed opens complicated people challenges. See our blog with comments from Philippe Manzanares at Coty.

Standing on your own two feet

Where M&A is often a positive marriage of convenience, divestiture can have all the challenges of a messy divorce. Who and how will we look after the ‘children’ and how will we ‘finance’ them?

Suddenly alone from the parent company, resources, facilities and budgets once available are diminished. Strict timelines are set for the separation from systems and assets, including HR and payroll. People data needs to be separated and critical talent replaced. This might even mean the complete rebuilding of business functions. How do you do this without the systems in place?

What hurts in the short-term works well in the long-term

NGA HR goes into clients right from the planning stage to work with their divestment teams. Step one is to establish what needs to be achieved to meet the overall objectives of the separation.

We’ve been through this in our own business several times and so fully understand the challenges and emotions that go with this. No one likes to give up what works and they’re familiar with.  Nobody likes to give anything away without a fight either!

However, by being forced out of a legacy HR and payroll infrastructure you circumnavigate the need to build the business case for HR modernization. The solution delivered will be an agile, integrated HR infrastructure that can easily grow with your business. It’s simple to on-board new people, locations or businesses. And, it is future-proofed and highly secure.

You can liken the results of a re-established HR and payroll infrastructure to that of moving from a grand Victorian house at the time of divorce. With hindsight your realize that it was actually not that practical and would require a lot of maintenance and upgrading soon. In its place you now have a very smart, all mod-cons new-build. Even better, it already has double height foundations and is ready to extend as your new family grows.

How do we achieve future HR and payroll success?

We work with IT departments on three main areas; service delivery for employees and managers; centers of excellence; and business partners. Everything from planning, design and build through management, maintenance and full-service delivery. We provide one-off project support through to a life-time partnership to ensure you never need to worry about HR and payroll infrastructure processes working.

Many organizations, Uniper and AmRest spring to mind, are opting for integrated HR, payroll and service center processes, delivered as-a-service and profiting from our “fast track” approaches, as mentioned earlier. Here a pre-configured cloud HR infrastructure can be up and running in just 12 weeks and at a third of the cost of a bespoke design and build that will suit other business types.

With demergers, we work with the spin-off organization to provide HR service delivery mechanisms. Much of what we do here involves setting up an entirely new HR and payroll system and to help train internal teams. Like we do with our green-field clients, we’re able to do this very quickly using a global HR cloud platform, including flexible service models, as mentioned above.

Employee driven

The clients we work with are prepared for the future. Above all they have HR processes in place that enable them to engage with and motivate their employees. We make it easy for them to do their jobs and feel in control. This also helps to attract and retain the best talent.

If you would like to talk to NGA HR about your HR and payroll challenges or you are in the process of a M&A or divestment, please get in touch.