Staying on Track

A large technology company offers another example of how measuring internal labor market dynamics can help executives who are faced with post-deal integration. In this case the executives of this global company had to evaluate the effectiveness of post-deal integration to see whether they were on track toward achieving their integration objectives.

This company was a major acquirer of smaller companies and their human assets. In some years as many as one-third of its new employees joined through acquisitions. The acquired companies were purchased largely because they had developed or were about to launch niche technological products that complemented the offerings of the acquiring company. The patents conveyed by those acquisitions were critical, but so was the human capital that generated them. It was hoped that the expertise of the acquired employees would complement the expertise of the acquiring company, potentially accelerating the pace of new product development. Thus, the strategy called for integration of the technical personnel of the acquired companies.

An analysis of the acquiring company’s internal labor market dynamics over time revealed the extent to which integration was being achieved in terms of human capital. The results were disappointing. Incumbent employees (those already employed in the acquiring firm) fared differently than did acquired employees in several important ways, with one being turnover. Acquired employees were leaving the company at higher rates than incumbents were, particularly in some units. This signaled integration difficulties.

Employee turnover is one of the more commonly tracked indicators of integration difficulties. ILM analyses involve many additional indicators. In this case, for example, the facts showed that the rate of pay growth of acquired employees was equivalent to that of incumbents, suggesting that integration was on track. However, the two groups differed significantly in several other ways, including promotions. Incumbents were 1.5 times more likely to be promoted than were acquired employees after accounting for differences in performance ratings, job, level in the organization, and other relevant factors. Internal mobility also set the two groups apart. In general, the parent organization had relatively high rates of movement between jobs, mostly within functional areas but sometimes between them. That rate of mobility was well suited to the project nature of much of the work and to the development of skills and expertise in related technical areas. However, it was the incumbents who were doing most of the moving; acquired employees rarely changed jobs. When they did move, they tended to remain in the same functional area. In fact, there was little evidence of integrating talent into the broader workforce. Table 8-1 summarizes our key findings.

Table 8-1: ILM Analysis: Incumbent Versus Acquired Employees

Employee turnover	On average acquired employees left at higher rates, although large differences existed by area
Base pay growth	Equal
Promotion rates	Incumbents were 1.5 times more likely to be promoted
Job changes within area	Substantially higher rates for incumbents
Transfers into different areas	Incumbents moved freely across functional lines; only one acquired employee did that

The story told by this ILM Analysis is one of opportunities lost and a need to get back on track. Acquired employees lost the opportunity for upward or lateral mobility in the parent organization. The acquiring organization lost the opportunity to benefit from collaborative product development efforts. The ILM Analysis did, however, identify where in the organization integration was going well and where it was not and helped prioritize the actions needed to get integration back on track. Further, it provided a dashboard of metrics that executives could use in monitoring the success and shortfalls of its integration efforts.