Episode #188: Buying People

When we buy a company, we are buying the people and all the “assets” - plant and equipment come with them, rather than the other way around. The due diligence gets done, the books are looked at carefully for any signs of “cooking”. Hidden debts, secret undertakings, compliance and regulatory issues are scrutinized. The people part however is given a “once over lightly” look because this is much harder to do thoroughly, than the other investigations. HR can tell us a lot about the structure of the pay arrangements, who are the high potentials, previous performance review results and the current staffing levels. Gauging staff productivity however is much more obtuse. The silly part though is that this is exactly what we are buying – staff productivity.

Often, the perceived productivity gap is “fixed” by firing staff to reduce costs and at the same time drive the leaders to push the team harder for higher revenues. This scenario usually doesn’t happen straight away. It takes time to get a sense of how things work, who are the “A” players etc. At the point of purchase though it is very hard to know these things. So having paid the money and received the company, how can the staff be engaged?

They have loyalty to the old regime and people. As we know, if the handover is not done well, the first out the door are the good people. They are quick to go because they have options and can easily find another job. Recruiters get very excited when there in an acquisition because they know they will pick up good quality candidates fleeing the carnage.

The top 20% of any organisation will be producing 80% of all the good things we wanted when we bought the company. The transition has to be handled well or we will lose the best people. The key producers have to be identified quickly and what they want ascertained, to ensure they remain deaf to the siren calls of the recruiters. These early conversations are vital and need to be authentic. People can spot spin very quickly in these tense times. In short order, expect there will be a swarm of recruiter worker bees buzzing around the organisation, so there is plenty of temptation for insiders to depart. Once key people leave the others remaining worry those who left know something everyone else doesn't know. Rumors fill the vacuum if there are not great efforts to control the narrative of the change over and bright future at the firm.

An organisation I know well is experiencing that. The new management brought in some harsh measures to lift the profits and the diaspora got underway immediately. The best people were soon safely ensconced in their rivals organisations, taking the long held client relationships with them. The organisation, which had been a profit machine is now falling apart.

Those who are not in the top group are often rapidly disenfranchised once the firings start. They cannot gauge when their turn for the chop will come and they don’t have super confidence to find another good job, so they spend all of their time worrying and trying to foster the appearance of work. They rapidly become brilliant “Yes” men and women trying to survive. Their focus is on internal organisational politics and trying to find protectors. The existing finely balanced internal order breaks down as people leave, new people are brought in and the zero sum game triggers old rivalries and battles between divisions and individuals. The whole focus shifts off the competitors out in the market to fighting with internal rivals. The client or customer is now a long way down the list of interests.

The concept of investing in the people is not well developed in these situations. The HR team are engrossed in the amalgamation process and everything else is suspended until the mechanics are completed. When they do finally come up for air they are asked to nominate who can go, to reduce the duplication across the common functions. Next come the firings and that saps the energy, spirit and job satisfaction of the HR team as they terminate colleagues of many years standing. At the end, the HR team gets the same medicine because they are also duplicated in their roles.

After all this disruption the “develop the people” part has been lost. If a fund has bought the business, then there is little appetite to invest in the people. They are looking to get their money back as soon as possible and flip the business. The people get run harder, the numbers get a lift and when the profit graph lines are tracking propitiously, the business is put back on the market. What about the people? They are there to produce results not receive development funding. If talent is needed new people are brought in, rather than trying to develop those inside.

We hear a lot about “people are our greatest asset”, “all of our key resources go down the elevator every night”, etc. A lot of the time it is theory and not practice. When we acquire a new business we are literally “buying the people”. Treating people as disposable assets kills the spirit of the organization and you can only engage people so far through fear. The innovation and creativity bits go into hibernation as people struggle to eek out their existence inside the machine. The damage is long-term as well, because the trust has been destroyed.

The lesson is that if you are buying an existing business, realise you are buying the productivity of the team. This is made up of their engagement levels and their creativity commitment to see the firm do well. This is the classic hearts and minds requirement. Short-term thinking is a game changer for the worse and a better approach would be to invest in the people already there. Show them that they are valued, that the organization is proud of them and that the enemy is without not within. Focus the energy on serving the company’s clients and on beating the competitors.

The amount of money required to do this is actually a “peanut”. The return though is vastly different and the true value of the enlarged enterprise can be better realised. This is what we actually bought. If we really believe that “people do make a difference”, then we need to have a “people first” orientation, rather than a “human asset” view on dealing with our team.