Merging HR Systems

In his 10 years at Waterbury, Conn.-based Webster Bank, Chris Muller has seen at least a dozen direct acquisitions take the institution to about 3,400 employees in 170 locations, and assets of $17.5 billion. One acquisition in particular stands out: First Federal of Massachusetts. Affecting 600 employees, it was Webster’s most ambitious deal—and one complicated by significant HR technology issues.

For example, First Federal outsourced all employee benefits whereas Webster handled most benefits in-house. As usually happens, Webster, as the acquiring company, got its choice of systems and was responsible for making sure everything worked. But much of the information Webster needed about First Federal’s employees was with outsourcers and was badly outdated. “We found that a lot of the data was incorrect,” including beneficiary names, says Muller, vice president of HR technology.

To further complicate matters, the deal’s details—and the list of employees to be integrated—kept changing “up to the 11th hour,” Muller recalls. Each of the 600 employees had to fill out complete enrollment data, and data for each form had to be entered into a computer—all within two weeks.

As Muller learned firsthand, mergers and acquisitions can put HR information systems to the ultimate test. Departments must bring together often disparate systems, usually on tight deadlines and limited budgets, to provide information critical at all levels of the company. Success requires thorough planning and meticulous execution as well as a cohesive HR systems integration strategy.

Smooth Merging

For a company looking to be acquired, or even to divest one or more divisions, having HR systems and data that facilitate the process can be an important selling point. At companies where growth is fueled partly by acquisitions, managing HR technology may be best accomplished by a system that taps into proven methodology for efficiently absorbing each newly acquired business and its employees.

According to the IT infrastructure practice of Washington, D.C.-based PA Consulting Group, acquiring companies should start by looking at their corporate business strategy. In considering technology’s role, HR should focus on identifying areas of difference and compatibility: Will the acquired company be absorbed into an existing division or form a new one? Is the newly acquired company’s business different enough that it will require systems adjustments to accommodate different types of organizational structure, compensation and benefits?

Depending on the answers, a company might need only some adjustments to its systems, or it could find itself significantly reconfiguring its HR management systems (HRMS) software or even looking for a new system that can accommodate its new requirements.

Absorbing an acquired company’s data into the acquiring company’s systems can be more difficult than anticipated. “We have customers that did [back-end HR system] mergers two and three years ago that are still dealing with the issue [of integration],” says Doug Miller, vice president of marketing at Authoria, a Waltham, Mass.-based human capital management software vendor. It can take time to get all the HR processes to work and to resolve data mistakes and other surprises when merging two systems.

Or, the company may decide to outsource instead.

For example, Webster Bank found it had to manage acquired companies with significantly different work schedules, including several insurance companies. Because the bank had to manage commissioned employees who worked out of their homes and had irregular schedules, it ultimately wrote its own time and attendance system to accommodate the variations. In addition, managing unemployment benefits, disability, and family and medical leave in multiple states proved difficult. So, instead of integrating those systems, Webster decided to outsource those functions.

In some acquisition scenarios, one or both of the companies will have outsourcing or service contracts in place. In that case, PA Consulting Group managing consultant Craig Rintoul recommends doing an analysis to determine whether it would be cheaper and simpler to break the contract, or cheaper and more efficient to develop an interface with the provider.

Global acquisitions present unique challenges related to multiple languages as well as regulatory requirements. For example, having a training system “doesn’t sound like that big a deal,” says Rintoul. “But in certain industries and particular countries, [employers] must prove that [their] people are capable and have been trained in health and safety procedures. At any given point, you can be required to prove to an external regulator that your people have been trained.”

China, for example, places a number of restrictions on employers, imposing regulations on such things as maximum amounts of overtime. “One of my clients has gone there and been pretty shocked at what they are allowed to do or not allowed to do,” says Rintoul. The right HR system can aid the employer in verifying compliance with Chinese laws. Employers operating globally should expect to encounter adjustments and challenges as they align systems across cultural lines.

Finally, in considering corporate strategy with technology strategy, make sure your systems can accommodate a company that grows through acquisitions. Red Man Pipe and Supply, a Tulsa, Okla.-based distributor of pipe, valves and fittings to the industrial and oil field markets, has grown from 200 to 1,000 employees over the past few years through acquisitions.

Because the number of new employees added through each acquisition ranged from a dozen to nearly 200, the company has chosen to manually enter the necessary information into its HRMS. But it recently realized that it was reaching a limit on the number of employees it could manage under the license terms of its HRMS vendor.

“We’re getting ready to upgrade our [system] to another thousand employee module,” says human resources manager Rus Hoos.

Getting in Synch

Beyond strategy, managing HR technology during a merger or acquisition requires that employers thoroughly assess their HR systems’ requirements and capabilities.

Managers need to adequately plan head count, locate in-house talent, apply uniform performance metrics for review, and plan for succession at any level of the company so that the departure of a key employee does not disrupt business. Technology integration must occur thoroughly and quickly enough that normal operations never appear disturbed to users. If the systems of the two companies are too dissimilar, the HR department might need another way to solve the problems.

An approach some companies take is to build a data warehouse, a type of complex database system that takes information from disparate systems and gives companies a unified view of collected data. But implementation—which involves specialized software, hardware and considerable expertise—can take a year or more to complete, still leaving operations fractured. A company also can roll out a single set of global enterprise software for all divisions, old and new. But, again, that could take two to three years or more. PA Consulting managing consultant Scott Lever says the decision to go with unified software may come down to one question: Will it still be valid when the rollout is completed, or will the new system be outdated and need its own replacement?

Finally, recognize that if two companies actually use the same HR management software, they still may have integration problems, says Brenda Byron, director of HR shared services at Alliant Techsystems Inc. (ATK) in Edina, Minn., a $2.8 billion advanced weapons and space systems company with about 14,500 employees. ATK has acquired eight companies in the past four years, and while it uses Oracle/PeopleSoft, not a single one of its acquisitions did. Even if one had, HR would have had to roll up its sleeves.

“I’ve had exposure to PeopleSoft at three places, and every one used it differently,” says Byron. The problem is that all companies have what they consider special conditions and circumstances, so they configure the software to better suit them. The chances of two companies even in an identical business using all the same settings are virtually zero.

Final Adjustments

With the right mix of systems and outsourcing in place, HR can proceed to the next quagmire: synthesizing the data from the acquired company. Every database rests on assumptions of what information actually means, and there may be more than one correct interpretation. Webster Bank twice acquired institutions that set the standard workweek at 40 hours while it used 37.5 hours, so the HR department had to adjust salaries going into the system so that people didn’t suddenly experience a pay cut.

Frequently during a merger or acquisition, businesses discover differences in companies’ HR systems and how they define fundamental data. Often, these differences can be subtle and may be poorly documented. If that’s the case, HR should move quickly to identify people at the acquired company who know the answers, but who might be leaving for other opportunities, and get the information while it is still possible to do so.

For instance, a company might find that the “definitions” that differ include such fundamentals as vacation time, the number of allowable sick days and even the number of salary grades. GE Energy, a roughly $18 billion division of General Electric that has conducted more than a hundred acquisitions in the past five years, often runs into this problem. “I might be a grade 2; you might be a grade 3,” says John Blowers, manager of HR information strategy. “How do we fit into the pay hierarchy?”

A higher grade can put an employee new to GE, known for its culture of eliminating the lowest-performing 10 percent of its employees, into effectively unfair competition with others who have a longer history with the company and who, as a result, have more knowledge about how to get things done. The company has also found that working titles that may be important in the field might not match the standard titles GE uses. It may be necessary for HR to resolve these kinds of discrepancies on a person-by-person basis.

Timing Is Everything

While accuracy is vital in completing HR systems integration, so is speed. The results could affect a company’s bottom line because the faster new employees are settled, the sooner they can concentrate on work.

As with everything else in HR systems integration during a merger or acquisition, there are several barriers to overcome. Even decisions as basic as determining when employees will be paid may be complicated by payroll timing issues that must be coordinated across company lines. “You have tax liability and balances that have to be brought over to a new system,” says Tom Tillman, director of product marketing HRMS vendor Sage Software in Irvine, Calif. Making the changes at the right time—the end of a fiscal year or the end of a quarter—can eliminate the complications of accounting for existing balances.

But depending on the timing of a deal, it may also be impossible to complete all the data migration by the deadline. That’s why HR may opt for a staged system changeover, an approach it may have to sell to management. “In the past we tried to put all the data into the system at once,” says GE Energy’s Blowers. “Now we parse it out.”

Tillman says his first priority when he learns that a merger or acquisition has been finalized is entering personal information and creating company IDs that allow new employees to get the equipment and services they need to do their work. The rest of the information is processed over the next two or three weeks to avoid delaying data entry for everything.

“We had to challenge the [corporate] mind-set of the time that [said] every record has to be complete at all times,” Blowers says. “It was a good concept, but it was bucking up against the operational needs.”

HR professionals experienced in mergers and acquisitions know that every deal is potentially disruptive, and some integration issues may have you chasing moving targets for months. But, with proper planning, an eye for detail and some flexibility, HR can make the process go more smoothly and help the company meet its goals.

Erik Sherman is a freelance journalist in Marshfield, Mass., who covers management issues.