Capital H blog

Don’t just integrate: Innovate!

April 2, 2019

Accelerate M&A value through HCM cloud

During an integration, there are available investment dollars to drive significant synergy targets, a well-founded reason for large-scale change, and an overall review of the functional operating model and organization design. These conditions together create a business case for companies to improve existing technologies and give HR the necessary tools and capabilities they need to be effective, comprehensive, and help improve employee experience.

Throughout the course of an integration, moving to an enterprise cloud technology offers the ability to build a strong HR foundation while simultaneously enabling a multitude of growth opportunities. Increased efficiencies throughout the HR Technology gained through an enterprise cloud solution can reduce the number of headcount hours used on operational activities. The hours can be reallocated to focus on strategic initiatives or removed to drive synergy savings. Similarly, a robust HCM cloud solution can streamline various tech vendors needed to support business activities, helping to improve efficiency and reduce cost.

Implementing an end-to-end cloud solution also enables a foundation that supports organization growth (both organic and through acquisition) and adds new capabilities based on its changing needs. The cloud holds the potential to redesign HR delivery and IT architecture to accelerate the delivery of talent strategies, revenue growth, and operational excellence that are all large considerations throughout any large integration project. Cloud solutions are highly configurable and flexible, which can help newly integrated companies scale the HR technology capabilities without compromising the quality, often resulting in simplified business processes and supporting higher global standards.

HCM cloud implementations in M&A enable newly combined organizations to establish a “digital mind-set” that places agility and intentional collaboration at the forefront of how processes are carried out. This mind-set can serve as a strong foundation for subsequent acquisitions as the organization will have the technological infrastructure to adapt easily with the help of an HR technology that can scale for future growth.

Given the condensed timeline required by an integration effort to realize synergies, companies typically consider a go-forward approach opting for more flexible, less expensive cloud providers (focused on transactional HR activities) over enterprise solutions (end-to-end, cross-functional platforms). Often, these more niche cloud solutions offer an accelerated timeline and supplemental services during stabilization, but at the expense of true transformation. As a result, many companies assess their HR solution in a piecemeal fashion and add on to existing technologies or services rather than reviewing the technology holistically.

Typically, however, companies looking for the most effective HCM solution pair the more focused and flexible solutions (e.g., provide outsourced payroll) with one of the enterprise cloud solutions during the integration. This enables an environment that is efficient and able to meet transaction goals, yet still provides strong opportunity for transformation of the business beyond Day 1.

Alternatively, another effective approach in the M&A and/or integration space that is gaining traction in the market is to use a solution-agnostic layer between the user and the cloud provider. This creates a more consistent, efficient, and digitally enabled employee experience during current and future integrations. The employee engagement layer can become an important piece of the organization’s end state IT strategy and architecture alongside the functional cloud solutions. Alternatively, the layer can serve as interim step between two organizations that are merging that have yet to transition to the cloud but need a consistent employee experience, case management, and a centralized support system.

Enterprise cloud solutions are accelerators that should also be considered throughout the integration. Aside from some functional nuances, these solutions can be implemented in a similar time frame. Both the staffing and technology approach are minimally differentiated across the solutions. By considering a holistic technology review and including the enterprise solutions in the decision-making process, companies can become more forward-thinking with their HR integration. This mind-set can help companies:

  • Improve broader enterprise solutions (e.g., Finance)
  • Support complex global requirements/localizations of large multinational organizations (e.g., local data, format, currencies, languages & processes)
  • Enable more complete Day 2 functionality (Talent, Comp., Recruiting, etc.)
  • Create long-term scalability for future transactions
  • Utilize embedded and predictive analytics
  • Quickly integrate with third-party systems
  • Secure virtualized tenancy with automatic updates pushed to system (all clients on the same software instance)
  • Improve overall user experience
  • Increase employee engagement and productivity

Using an HCM cloud implementation as an entry point for additional transformative change is an effective way to capture additional efficiencies throughout the organization. With the business already in the mind-set for change, using this time to evaluate where the nature of the organization can be transformed further, not just from a synergy standpoint, will help keep the future health of the organization as a top priority.

The convergence of technology innovation, strategic HR business needs, and the need to keep technology up to date during mergers, acquisitions, and divestitures creates opportunity to advance HR technology capabilities. Leaders recognize a need for improved HR delivery models to enable business growth, as aging and/or complex HR technology architectures require timely and expensive updates. The maturity, functional depth, and integration capabilities of cloud solutions make 2019 a unique time for HR Transformation during integration efforts.

Tom Joseph is a principal in Deloitte Consulting LLP and has more than 18 years of M&A consulting experience. He works closely with clients to plan integration strategies, plan for an issue-free “Day 1,” manage enterprise-wide organization readiness, and design the cross-functional integration program.

David Futterman is a senior manager in Deloitte Consulting LLP’s Human Capital M&A practice with over 12 years of experience spanning the M&A life cycle. He is also Deloitte’s Human Capital Management’s M&A cloud leader, where he assists in providing an unbiased view of the market landscape, as well as driving the intersection between the non-HR technology cloud offerings (e.g., ERP, Supply Chain, CRM, etc.).

Caroline Closkey is a senior consultant in Deloitte Consulting LLP’s Human Capital M&A practice, supporting clients from due diligence through post-merger integration in M&A transactions and divestitures.

Mia Farnham is a consultant in Deloitte Consulting LLP’s Human Capital M&A practice, supporting clients in executing M&A transactions and divestitures at all points of the deal life cycle.

Andrew Kuhn is a Consultant in Deloitte Consulting LLP’s Human Capital M&A practice. He supports clients in executing mergers, acquisitions, and divestitures from Due Diligence and Operating Model Design through the end of the transaction lifecycle.

Originally published at Capital H blog