Deloitte, the world's leading M&A expert organization, and NayaDaya Inc., a people risk analytics company, tackle the central challenge of business acquisitions and integrations: employee turnover and falling productivity.
M&A volumes increased during the last decade until 2021, which was the most active M&A year in history. In 2022, however, there were some setbacks that have had an impact all the way to early 2023. Nevertheless, Deloitte's Tapio Koivumäki believes that the pace is improving again and that the second half of 2023 will be busy.
Koivumäki, Deloitte's partner and Operational M&A Advisory Leader, follows events from a vantage point – Deloitte is a leading provider of M&A services and has a strong presence in both global and local markets.
"Various types of corporate reorganizations are increasingly common practices to solve future challenges. Climate change, sustainability issues, blurring of industry boundaries, resilience of supply chains, and the accelerating development of technology are hiking up the number of transactions. Companies must renew themselves faster than ever, and M&A is one of the ways to do so," states Koivumäki.
Employee Engagement – One of the Toughest Challenges in M&A
When the competition gets tougher, succeeding in business acquisitions becomes crucial. According to many studies, failures are more common than successes, and often business deals do not produce as expected. This can be observed both in the companies' own assessments as well as in the listed companies’ market value development.
"Integration is the most challenging part of a business acquisition. When you look at the reasons why the integrations fail, people and culture most often stand out. The problem does not only apply to certain industries. Ultimately, the key to a successful integration lies always in employees who are engaged in the change," Koivumäki emphasizes.
Deloitte starts planning the integration with top management and top-level goals, from which the process moves forward deeper into the change and inclusion in the organization. As the integration progresses, the company’s middle management often experiences challenges and pressure, and it is therefore essential to stay tuned with the entire organization's pulse.
"Even if a business acquisition is received positively at first, the change curve can turn negative fast. Pain points or misunderstandings must be addressed in time to avoid integration failure. The risks increase if the level of employee engagement and the root causes are not identified in the target organization. Traditional satisfaction surveys can be too slow a way to obtain information about the effects of the change and do not produce an understanding of engagement," Koivumäki underlines.
Personnel risks are a part of the M&A process even before the acquisition or investment takes place. However, comprehensive HR due diligence (DD) reports are conducted relatively rarely. Although employees are a key part of the value that is being acquired or invested in, knowledge about the risks associated with employee engagement is limited.
"In HR-DD, attention is traditionally paid to financial matters and metrics, organizational structure, management and key personnel, HR function and culture. The aim is to examine the organizational level of engagement through facts, such as sick leave days, employee turnover, and the results of job satisfaction surveys, but these are, quite frankly, largely backward-looking indicators. Even though HR DD provides loads of useful information, a proactive understanding of the organization's engagement and behavior remains often partial. And this is the area where empathy analytics gives a new perspective already in the DD phase," Koivumäki points out.
Empathy Analytics® Reveals the Root Causes of HR Risks in M&A Process
Under the leadership of Tapio Koivumäki, Deloitte has helped the Finnish empathy analytics company NayaDaya Inc. to develop a solution that helps companies and venture capitalists answer the most critical questions of corporate integration and due diligence:
Will productivity drop?
Will employee turnover increase?
Are disruptions and costs to be expected if resigned experts need to be replaced?
Is growth synergy, which realization often relies decisively on people, lost?
It is essential to understand what is to be expected and why – and how to avoid problems related to personnel.
"Empathy analytics answers the questions we are asking together with Deloitte in a way that is completely different from traditional methods, surveys, and metrics. We dig deeper than the surface with the help of emotions and science. We locate the root causes of employee retention, turnover, and productivity at different stages of the M&A process. We produce missing information, which is used to counter the worst risks of business transactions", says Timo Järvinen, Co-founder and CEO of NayaDaya Inc.
Not only the new understanding is essential, but also the efficiency, standardization, and productization of the process. "In the M&A process, personnel must not be burdened with any additional tasks. The power of emotions and science is that we can find out the most relevant things by asking only three intuitive questions. There is no need for long surveys, and answering is more meaningful. The method automatically ignores everything irrelevant and visualizes the matters that really affect behavior," Järvinen describes.
Koivumäki emphasizes the process-like approach: "We have jointly developed an optimal model that supports the entire DD and integration process. The intelligent and agile solution produces frequent, up-to-date snapshots that enable quick reactions and the implementation of corrective measures. This is how significant benefits are achieved."
So why the traditional surveys do not produce the necessary information? According to Järvinen, the answer is based on science: "Satisfaction surveys do not reveal the reasons for engagement, because engagement does not correlate with satisfaction. Using emotions and science to understand engagement is not difficult at all, as long as you have the right tools."
Together, Deloitte and NayaDaya Help Customers Succeed
The collaboration between Deloitte and NayaDaya is not only about the development of M&A Empathy Analytics®, but also about serving customers together. The solution has been adapted as part of Deloitte's comprehensive M&A service package.
"The typical service we offer includes comprehensive planning and implementation of the integration process. Deloitte's and NayaDaya's services support each other well. Empathy analytics is an excellent tool for managing and leading change. When risks are identified in time, they can be reacted to without delay. Lightness, agility, and repeatability create a framework for continuity and efficiency. The model fits well as an effective practice in the M&A playbook," recommends Koivumäki.
"Before starting a standardized process, we recommend a light and risk-free experiment, with which the benefits of empathy analytics can be identified in connection with a business acquisition or capital investment. Own data and results are the best eye-openers. We work with Deloitte – together or separately – according to our clients' needs," Järvinen continues.
Empathy Analytics® has been developed for several years and it has been applied to the analysis of numerous brands, employers, and phenomena. M&A process brings together a huge, global problem and a ground-breaking scientific innovation, which has already been tested and proven in connection with various business reorganizations.
"Not even thousands of working hours would have been enough had we not been supported by Deloitte's exceptional experience and state-of-the-art expertise. We are grateful for the progress we have achieved through this cooperation – the goals are high," applauds Järvinen.
"We are facing a fundamental fact: without engaged people, there is no successful integration. Employee turnover and a drop in productivity end up being very costly. When this is compared to the scale and goals of business acquisitions, it is hard not to recommend this solution that is a concrete step in the right direction," summarizes Koivumäki.
Tapio Koivumäki, Partner, Operational M&A, Advisory Leader, Deloitte, tel. +358 40 357 6138, firstname.lastname@example.org
Timo Järvinen, CEO, Co-founder, NayaDaya Inc., tel. +358 40 505 7745, email@example.com
Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax, and related services. During its 175-year history, our organization has grown tremendously in both scale and capabilities. Deloitte currently has approximately 345,000 people in more than 150 countries and territories, and serves four out of five Fortune Global 500® companies. Yet, our shared culture and mission—to make an impact that matters—remains unchanged. This is evident not only in Deloitte’s work for clients, but also in our WorldClass ambition, our WorldClimate initiative and our ALL IN diversity and inclusion strategy. Further information at https://www.deloitte.com
NayaDaya Inc. empowers companies and investors to identify and manage HR risks: the Great Resignation and M&A failures. Empathy Analytics®, based on emotions and science, is a unique solution for truly understanding the root causes behind employee engagement and disengagement. Further information at https://www.nayadaya.com