News | May 20, 1998

Merger Mania Prompts New Look At Conventional Management Wisdom

The recent surge in merger activity is prompting business leaders to question some long-standing beliefs. George Bailey, the global director of Watson Wyatt Worldwide's Human Capital Group, has developed a list of what he believes to be old myths and today's realities, which these mergers have brought to light.

According to Bailey, Myth #1 is, "Employees are resistant to change, and will prefer to maintain the status quo." In reality, he says, almost half of high-performing companies in a recent study conducted by his firm say change has a positive effect on employee satisfaction. Employees more often than not understand reasons for change and know the steps that need to be taken. The only problem, they say, is that companies are not soliciting and acting upon employee suggestions in this area.

Watson Wyatt's 1997 WorkUSA study of 9,144 working Americans indicates the vast majority of employees understand their company's goals (83 percent) and their own job responsibilities (87 percent), but few are given the skills (43 percent) and information (38 percent) needed to achieve those goals.

Myth #2, according to Bailey, is, "The more training you give employees, the better your company's stock will perform." The reality is, employees at high-performing companies actually had just two-thirds as many hours of training annually (30 v. 45 hours at other companies), according to a recent Watson Wyatt survey. Bailey points out that companies need to realize employees don't learn and grow by placing a check mark in the "Training Completed" column. Although training can play an important role, employees respond to real on-the-job experience, mentoring, and other more hands-on programs.

Bailey's Myth #3 is "The more visionaries a company hires, the more successful it will be." Wrong again. According to Watson Wyatt research, the majority of high-performing companies actually have fewer employees who are characterized as visionaries.

Instead of focusing on the hiring and retention of so-called visionaries, companies need to look to the key drivers of success, such as fostering innovation among all employees.

The fourth Myth is, "A good financial match makes for a successful merger." Although Wall Street has applauded the recent mega-mergers, the reality is that companies cannot simply be pushed together without carefully analyzing the people side of the equation. In fact, research indicates that 80 percent of mergers that fail do so because of people issues, and 75 percent of managers in an acquired company leave in three years, Bailey notes.

Myth #5: "People issues are "soft" issues." Bailey says that, increasingly, human capital issues define the success of corporations. How else to explain a company like Microsoft with assets of only $14 billion, but a market capitalization of over $170 billion? The reason Microsoft is so highly valued by the market is because its people continue to create great products. Instead of being confined to the realm of HR, people issues need to be linked directly to the company's overall strategy.