8 Hr Paves the Way

8/3/2019 8 Hr Paves the Way

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MIT SCHOOL OF BUSINESS

Case No. : - 8 Sub : - Performance Management

Batch : - 28th Semester : - III

Faculty Name : - Prof. (Col). N. Ram Gopal Date :-

HR PAVES THE WAY

Questra Technologies has just acquired two telecom companies to enable the company to leapfrog into the

top three global broadband service providers position. Determined to avoid the mistakes made during a

previous merger, Questra planned and executed a comprehensive, HR led post merger integration program.

Would Questra achieve the primary objective of the merger?

Monday, 04 April 2005, 9:30am, Sanjay Gupta, Head Group Human Resources, Questra Technologies,

mentally ran Human Resources, Questra Technologies, mentally ran through the agenda for the final

review meeting of the year-long merger and integration initiative that his company had undertaken. In

2004, when he was given charge of the project, many skeptics had warned him about the pitfalls awaiting

him.

The pitfalls, it seemed, were many. For one, it was common knowledge that many a M&A (merger and

acquisition) failed to deliver the promised value because management teams did not spend enough time toanalyze what would work and what wouldn't in the new integrated entity. Second, according to a study by

an international consulting firm, two thirds of those involved in leading change felt that they had been

insufficiently prepared for the task by senior management. Third, as suggested by one research, more than

nine out of ten corporate M&As fell short of their objectives because managers often got bogged down

with finance and technology issues and failed to concentrate on integrating corporate cultures and

management styles.

As Gupta looked back on his year long journey to this point, he did so with a satisfied smile. For, he was

now confident that Questra Technologies would prove the skeptics wrong.

A marriage made in heaven?

Headquartered at New Delhi, India, Questra Technologies was a $3 bn globally admired next generation

broadband technology company. Its vision was to be a leading provider of cutting edge communication

products and services, specializing in application and content distribution across communication platforms

and global markets.


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In 2004, Questra decided to acquire two next generation telecom companies simultaneously with the

objective of leapfrogging into the top three global broadband service providers position. The two

companies were the Singapore based Sequence Technology, a $70mn next generation company operating

in the internet protocol domain, and Emarin Inc, a $55 mn US based company operating in the mobile

technology domain. Sequence Technology had an international footprint in broadband services with

network operation centers

It was critical that Questra integrated the cultures of all three companies into a cohesive one

(NOC) in London, Hong Kong and Tokyo. Emarin Inc, on the other hand, was the leading direct

communications provider to the New York Stock Exchange, Chicago Mercantile Exchange and NASDAQ,

and interconnected with multiple market participants and intermediaries. Together, Sequence Technology

and Emarin Inc had 9500 enterprise customers, concentrated in four industry verticals, which accounted for

50% of the broadband market worldwide. The verticals were financial, legal, government and healthcare.

The acquisition of Sequence Technology and Emarin, it was thus felt, would enable Questra to reap

benefits from the convergence of technologies; multiple platform networks and applications; increased

economies of scale and scope; a larger geographical footprint; and accelerated penetration into the

lucrative $800bn global enterprise data market.

If, however, the M&A was to result in increasing shareholder value, it was imperative for the merged

entity to operate using the knowledge capital, capability, and best practices of all three companies. To do

so, it was critical that Questra integrated the cultures of all three companies into a cohesive one and ensure

that it retained all key knowledge workers from a collective work force of 24,000 plus as on date. The three

companies together had hired some 7500 employees in 2006, and were projecting to hire another 10,000

plus in 2007 and an estimated 18,000 in 2008. Much of the recruitment was focused on the fast shrinking

pool of experienced and talented telecom engineers.

Compatibility issues

About five and a half years ago, Questa had acquired its first company. At that time, the company hadmade many mistakes in integrating the two companies, and the merger initiative had been rather painful for

many managers. The M&A activity had succeeded in the end, but not before the company had faced

several bottlenecks. Not surprisingly, the traumatic memories of the previous merger led to skepticism in

the minds of several Questra managers who had lived through the experience.


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According to Naveen Tandon, Senior Manager, who had been with Questra for the past eight years, the

issues were many: "Several employees resisted change at that point of time because they feared negative

personal consequences. Unless employees are informed about how the merger will affect their career, they

will resist it. Moreover, downsizing and consolidation of employees is normal after a merger, as

management tries to eliminate redundancy. Employees know this and worry about their future. The period

of worry is also prolonged as communication from top management usually comes to a standstill with

priority being given to planning future direction and restructuring. Middle management cannot take on the

role of reassuring employees since they too are kept in the dark. Then, there are questions about whether

the acquiring company will impose policies and procedures on the acquired company or vice versa.

Inevitably, employees see the other company's policies as less effective than the policies currently being

followed. All these grey areas finally lead to many employees concluding that they must choose between

taking care of themselves and supporting the company. Some senior managers may also try to protect the

employees in their team. Consequently, many employees view mergers as a battle to be fought and won."

Sharad Goklani, another senior manager who had also spent nine years with the company had a different

story to tell. He felt that roles and responsibilities change when companies merge. It may not be clear who

is in charge, who makes decisions and what authority employees have. Many aggressive employees seize a

perceived advancement opportunity and assume they are better off asking for forgiveness than permission.

Passive personality types will wait until someone in authority clears the confusion. Without clear roles and

responsibilities,productivity suffers as employees postpone work until clarity is achieved. In the previous

merger Goklani also found that, many employees chose the certainty of a new job over the uncertainty of

staying with the merged company. Some left because they felt betrayed. The irony was that, in a merger

situation, the more talented employees leave because they easily find other opportunities. The deadwood

often stays because they do not have other options.

Prenuptial decisions

Human resource management was, in fact, given the highest priority with Questra beginning the employee

restructuring initiative even before the announcement of the merger with Sequence and Emarin. The timing

of the initiative played a critical role since it helped the new management to lay their cards on the table

immediately post the announcement. To ease the transition, Questra also announced the nomination of

Sanjay Gupta as Integration Officer.In his new role, one of the first reports that Gupta had to give Philip Mathew, CEO Questra Technologies,

was a detailed organogram, recommending managers for various executive positions in each department,

group, division and location of the merged entity. Put simply, the most crucial decisions concerning the

structure of management were taken early in the process. For each top executive position, Gupta came

across at least two or three strong contenders.


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He was aware that any negligence over the choice of management ran the risk of sinking the M&A.

Employees from the acquired companies still harboured doubts

Mathew immediately chose the best fit between contenders and available positions based on the report.

Once the new organogram was finalized, a meeting of all the senior managers from all the three companies

was arranged to draw up a list of employees who were deemed as indispensable to the newly reorganized

Questra Technologies. Commenting on the process, Mathew, said, "The top management team went

through the organizational structure line by line to identify the key employees who must be retained."

It wasn't an easy task. The big challenge for the team was to develop a set of merit based criteria that

would be acceptable to all stakeholders and implement the same across the company at the earliest. Within

the next three days, the team came out with a shortlist and on that basis one top manager for each division

was made accountable for retaining key employees.

Thus, when the merger was announced, the Questra management team already had a detailed list of key

employees. This enabled the management to immediately touch base with the identified employees, meet

with them on the shop floor, explain the fundamentals of the merger, and outline the future process. The

managers also conducted candid and open discussions with the employees, staying with them for as long as

it took.

Even employees located in several remote international locations were contacted through phone or the

Internet within two hours of the deal being announced. To such employees, Questra managers said, "We

want you to know that we are really excited about this acquisition and that you will be playing a key role.

We are planning to hold a meeting in your location within the next couple of weeks, at which time we

would like to talk to you about the objectives of this merger and your value to us".

As Mathew points out, "You have to get in touch with employees quickly, communicate extensively, and

tell the employees what you know before they fall prey to rumors. Though much critical information

cannot be disclosed, it is important to share what you can while assuring employees that you will

communicate the rest as soon as you are in a position to do so.

Of course, the management still had to face the challenge of dealing with hostile and average performers,

and respond to questions such as, "We are the acquirer, not the acquired; so, why are we losing our jobs? "

Further, the management found that employees from the acquired companies still harbored doubts, leading

to questions such as 'are they going to value us in the long term? '; 'are they going to be professionally


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managed. To address such questions, Gupta believed that Questra Technologies had to roll out an

assessment and selection process that would demonstrate the company's professionalism in organizational

management and career planning. This, he felt, would result in employees feeling valued.

Setting the right note

The first phase of the merger process had been successfully accomplished. But, the Questra management

believed that the situation was still fragile and an extensive communication program was required to clarify

various issues and concern areas. With this objective, the company launched a comprehensive employee

communication program, which included a statement of guiding principles and policies on employee

relations, besides other critical HR policies.

The statement was drafted to project consistent employee management standards across the company and

its operations, and to powerfully communicate the company's new goals and values. Management also

decided to tailor the statement on the merger deal to reflect the guiding principles. Some of the statements

included were:

We seek to capitalize on the strengths of all three both companies in the employee selectionprocess.

employee selection will be done on the basis of meritocracy, and by matching competencies and Experience to positions. A committee comprising the CEO, the head of HR and other top managers will review all

conflicting cases.

In addition to the above, the company also organized several workshops, presentations and interactive

sessions to develop a understanding of the merger process that would unfold over the next few months.

Meeting ground

The Questra management also realized that the integration would succeed more if it was modeled on an

inclusive process rather than a top-down, autocratic one. A decision was, therefore, taken to launch a new

culture formation initiative across the company. The thinking was that the culture formation process would

determine the manner in which the company would tackle issues and challenges, employee interaction with

each other, and company interaction with stakeholders and employees. By following such an inclusive

culture formation process, it was felt, that employee commitment to the newly merged entity would be

guaranteed .


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Questra did realize that integrating of cultures was always a difficult and hugely challenging task. And, in

this case, the task was doubly, or rather triply, difficult since three companies were being merged into one.

Mathew, therefore, believed that it was necessary to harmonize, regularize and communicate about all

elements that influence culture, including learning and development, recruitment, performance

management, employee engagement and empowerment.

He further believed that to avoid the backward looking "we versus them" thinking, it was advisable to form

new teams with employees from all three companies. Such an organizational structure would then result in

the new culture including the best elements from all three companies.

On the basis of the above rationale, the Questra management carried out a detailed analysis of the culture

of all three companies. This included a diagnosis of the existing culture, value systems, norms, differences

between and the common elements of all three cultures, cultural barriers, and the basic ingredients of the

desired new culture. The diagnosis also established "linkages" among all three companies to achieve a

better understanding.

The analysis helped Questra to evolve a road map for immediate implementation, which included

identification of the best value system emerging from all three cultures; critical diversity issues;

development of a code of conduct including positive and negative behavior for all stakeholders; and an

action plan for incorporation of the code of conduct in all HR systems and procedures within a specified

duration.

A new family formation:

The next priority was to incorporate all remaining employees into the activity of the reorganized Questra.

This was definitely not the same as communicating with or motivating employees. It was reintegration. It

meant engaging employees as meaningful contributors in the strategic challenges facing the company.

Concrete, emerging business issues would need to be used to generate a sense of urgency. The urgency

generated would also have to be a cascading influence, starting at the top and continuing down through

organizational levels. With the above priority in mind, Mathew and Gupta scheduled a four day off site

engagement program for 125 of Questra's reorganized senior and mid level managers.

A senior technocrat from a middle management strategic initiative team kicked off the meeting with a brief

presentation of the three key focus areas, which would result in repositioning Questra and leveraging its

competitive advantages.


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The first key area focused on strengthening partnerships with the large customer base of Sequence

Technology and Emarin Inc. The second focus area was to integrate the business processes of all three

companies and the third was to offer an integrated product and service offering to customers. Small groups

were formed and members were then asked to identify the critical dimensions in these strategic focus areas.

There were several requests for modifications and improvements from the members when the group

reconvened, but at the end there was a general agreement on the various ideas.

The next step was an internal assessment and evaluation. Components of the strategic structure and

processes were divided among teams with the task of analyzing how the said components might affect the

three focus areas. When this analysis was shared with the larger audience, it was clear to most employees

that Questra's business strategy would be seriously influenced by the new initiative.

The process, like all other merger processes, was however not without its stress and flash points. For it also

succeeded in exposing managers who were still resistant, and even hostile to the merger. One such senior

manager, for instance, chose the last twelve minutes of the meeting to air his differences with the merger

and Mathew publicly. The manager was asked to resign a week later.

Mathew explained the decision by saying that the manager was asked to resign not for disagreeing but for

never disagreeing in the past or at any time during the meeting except in the penultimate minutes. Most

Questra employees seemed to accept this explanation, leading Mathew and Gupta to believe that the

incident would not affect the integration process.

Questra followed the above meeting with a two day, offsite event for select operational level frontline

employees. In this program, over 75 employees were split into smaller peer groups from each of the major

functional groups in the reorganized company. The new concept proposed in the last strategic meeting was

discussed. Mathew's objective was, first, to give customers a single point contact with Questra and, second,

to develop the customer service team to break bureaucratic hurdles and increase customer satisfaction. He

was of the opinion that it was difficult to shift and develop capabilities of the customer service team unless

deadlocks were broken and resources redeployed.

Exhibit 01: all three companies at a glance

Questra technology Sequence technology Emarin inc

Total valuation of the

company$ 3bn $ 70 mn

$ 55 mn


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Nature of the companyprivately held company

privately held

company

privately held

company

Current sales$ 80 mn turnover $ 23 mn $ 20 mn

Pat$ 21 mn $ 4.2 mn $ 6.7 mn

Areas of business. expertise broadband technologyinternet protocol

domain

mobile technology

domain

Current number of employees 16,500 plus 4000 plus 3495 plus

Number of employee hired

during 2005-63500 plus 1900 plus 1700 plus

Background of the employees telecomm/ soft. engg telecomm/ soft. engg telecomm/ soft. engg

Average age of employees 27 years 25 years 29 years

Average age of the managerial

staff33 years 31 years 35 years

Average number of years of

experience

4 years 5.1 years 5.7

years5.1 years 5.7 years

* looking into the vast emerging opportunities, all the above three companies together plan to hire 10,000+

employees in

2007, and 18,000+ employees in 2008.

Growing the family tree

Integration does not begin and end with few offsite meetings, however effective they might be. Mathew's

next move was to make more structural changes. To overcome this, Mathew decided to make the

organizational structure flexible enough to accommodate all high performing individuals. He believed that

growth should not just be up the ladder or depend purely on acquiring managerial competencies. Another

productive growth path could be horizontal.

Many globally admired companies had also instituted technical expertise programs to allow individual

contributors and specialists to develop their expertise and competencies. According to Mathew, the lateral

method also worked because it was consensual in style; an important factor in managing highly talented

individuals.


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Nurturing the family

In the subsequent stages Questra launched a few other unique employee engagement initiatives. The

company decided to identify competencies needed for a gamut of roles, each of which carried a rating from

one for a beginner to five for an expert.

The idea was that in the communication industry, junior employees had limited influence over their

assignments but were nevertheless crucial links in the chain. Hence Gupta believed that they must be given

a clear picture of how their career could shape up and have greater control over it. Using the competencies

matrix, Questra employees would be in a position to view not only a profile of their current competencies

but also what competencies they needed to acquire in order to grow into more challenging positions. To

help them acquire desired skills, the company instituted learning programs, many of which were delivered

and administered through the Internet.

Moving forward, Questra Technologies also launched a program called "Fast-Track", which identified

fifteen career milestones on the path to becoming a senior manager, each of which triggered development

activities. Further, a unique two month residential course for a handpicked group of probable senior

managers from across the company was also instituted and received good acceptance from employees.

The programs ensured that employees kept learning and networking even after they reached senior

management positions. To keep employees happy and energized, the company also launched another

program to help prepare employees for life outside the company, besides helping them enhance their

competencies. In addition, recently launched programs aimed at keeping the company in touch with former

employees, more flexible career paths and an employee incentive system linked with development for

senior executives were also well received.

By giving employees more control over their career development, top management felt that the overly

aggressive "stay or move" approach, which was a risky strategy when talented employees were in short

supply, had been replaced with a more persuasive approach. As Gupta remarked, "Not everyone can

be a senior employee, but they can still be extremely valuable to the company."

Family unity

What was the outcome of Questra's year long post merger? "One hundred percent retention of key talent",

according to Mathew, as Gupta was preparing for the closing review meeting of the post merger integration

program, he reflected that a systematic and well planned HR led, post merger integration program had ledto a smooth and successful transition. The program had succeeded in making managers focus on strategic

as well as people related issues. After all, integration was about changing not just organizational structures,

processes and strategies but also people without whom no M&A activity could achieve its objectives. This

was the mistake made by organizations world over: the assumption that the merger by itself would

generate sufficient interest to get employees and stakeholders on board and that one speech from the CEO


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would get everyone going The organization structure, systems and processes had also aligned employees

with organizational goals by rewarding certain behavior and discouraging others.

Gupta further reflected that the energy generated from the integration initiatives would result in the

rejuvenated energy of Questra's work force capitalizing on the strengths of all three pre-merger companies.

Truly, leaders must channel employee energy behind strategic intent. Unless, people receive clear

guidelines and an understanding of how they can contribute to the overall goal, their energy will deplete

rapidly. For their energy to be fully utilized, top management must actively drive the pace of integration,

embrace it in specific ways, make it personal, and ensure that the company improves individual and

organizational competencies in order to capitalize on emerging market opportunities.

Question

1. What is the effect of Synergy in M&A? And what common synergies actually inspired thismerger?

2. Discuss in detail various actions taken to smoothen the pre merger, integration and post mergerstages of M&A/

3. The Questra management seems to have pulled out all the stops to prevent the typical post mergerissues of employee attrition, morale, confusion and cultural conflicts. The question, however,

remains as to whether the post merger integration process will succeed in catapulting Questra into

the envisioned top three global broadband company position and deliver significantly increased

shareholder value? To ensure that the primary objective underlying the merger is met what should

HR do next?

8 Hr Paves the Way

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