By Cliff Mansfield and Lisa K. Michaud
When the Human Capital (HC) DealMakers community recently came together, we had an engaging discussion about the work that goes into preparing for a successful org design during an integration.
Almost every transaction comes with an effort to redesign all, or portions of, an organization to meet the goals of the deal. Figuring out how to get started with org design work is typically the most challenging part – ensuring the correct inputs are ready and the right stakeholders are engaged at the right time. We typically advise that clients start with the strategic components of Org Design first and confirm buy-in on those pieces before moving forward with the tactical components.
Strategic Components of Org Design:
- Alignment on shifts to the Enterprise Operating Model, as a result of the transaction
- Understand implications to functional operating models and if there are any changes to the enterprise operating model across structure, governance, and decision rights
- Preparation of detailed Org Design plan, timeline, and guiding principles
- Define the appropriate stakeholders to get buy-in to the org design plan and guiding principles, in addition to alignment on roles and responsibilities across the plan
- If possible, include org design communication milestones in your timeline when gaining buy-in, such as offer letters and notifications, with dependencies on deal close noted where applicable
- Understand available Org Design data and Labor Synergy Baseline
- Based on the timing of the transaction, some or all necessary org design data may not be available and will impact the timeline of the org design plan
- Determine what data should be used to determine the Labor Synergy Baseline
Let’s break down and unpack the third component of Strategic Org Design ‘Understand available Org Design data and Labor Synergy Baseline’:
Org Design Data Prep Considerations:
- Determine “must-have” employee census data vs. “nice to have” to begin the tactical org design process
- We typically see “must have” data as employee unique identifiers, manager/supervisor unique identifiers, location, title, and function
- Unique identifiers may be actual or masked, as long as reporting lines are consistent and included
- Evaluate what org design decisions can be made if “must have” data cannot be made available immediately
- If data cannot be easily incorporated into your process for tactical org design, determine what additional “must have” data you may need to prepare
- Map target/incoming employee functions to the enterprise operating model structure
- When stitching the target/incoming employee census information to your organization’s employee data, a degree of data cleansing is typically necessary to make the data most useful for org design purposes
- Most often, it is essential to use the same organizational classification of function and location to parse out the data appropriately during tactical org design
Labor Synergy Baseline Considerations:
- Understand how the target organization categorizes their employee costs
- Most often employee’s total compensation is inclusive of a fringe benefit estimate, STIP/LTIP future payouts, and planned merit increases, but organization’s may have nuances to how those costs are tracked on their balance sheet
- Understand the organization’s annual budget cycle and how open positions receive budget approval, as that will be important if future open positions are eliminated as part of the tactical org design process
- Define the labor synergy calculation to be used throughout org design
- We typically see HR partner with Finance and senior leadership to define the appropriate SG&A costs to include in labor calculations, including IT application licenses, travel expenses, and future AIP payouts
Once the strategic components of org design are solved for, you are well prepared to begin the tactical portion of org design and derive additional value from your organization’s transaction.
Monthly our Human Capital Mergers, Acquisitions, and Restructuring (M&A/R) team connects with HR professionals focused on M&A/R work (aka Human Capital “DealMakers”) across every industry. During these sessions we discuss topics that are top of mind for them as they support their companies. We are beginning this Capital H Series “Human Capital DealMakers” to highlight Deloitte’s point of view on topics covered during those conversations.
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