Satyam: Tech Mahindra's people challenge

Few can match Anand Mahindra's oratorial skills -- something that was fully evident when he addressed the media after Tech Mahindra emerged the winning bidder for Satyam.

So it wasn't a surprise when Mahindra looked straight at the cameras and thanked the 'talented Satyamites who have kept the ship afloat amid turbulent weather' and stressed the Mahindra & Mahindra group's human qualities. Mahindra also said the group would do everything in its power to develop enough business so that the pain was minimised.

That must be music to the ears of around 48,000 Satyam employees who have been facing an uncertain future ever since Ramalinga Raju's stunning confession that he had been cooking the company's books over the past several years. 

Mahindra deserves to be complimented for not forgetting the people-aspect in his moment of glory. For, while sewing up the legal, financial and operational elements of an acquisition, most companies forget that M&As are not just about balance sheets, cash flows or marketing synergies; they are also about people who make the synergies happen.

There are several reasons why Mahindra made conscious efforts to reach out to Satyam's employees.

First, Tech Mahindra has less than half the workforce of Satyam and needs people. Second, its talent pool mainly specialises in the software skills related to telecom. So the company needs to retain Satyam employees who have non- telecom domain skills. Third, Satyam's employee strength has already come down to 48,000 -- it was 53,000 before the scam broke out.

Many of its top executives who were running key verticals and geographies have already left the company and joined the clients they were servicing. For example, Subu Subramanian who headed the manufacturing and automotive vertical, and Anil Kumar who headed the financial sector of Satyam's BFSI segment -- responsible for handling 23 per cent of the Satyam's revenues -- have left.

However, it's equally obvious that some amount of layoffs would be necessary unless Satyam manages to increase its revenues fast.

Sample this: With 53,000 employees, Satyam's revenue was around $2.2 billion last year. Though the number of employees has gone down by 5,000, Tech Mahindra estimates just around $1.3 billion revenue this year. That's $27,085 revenue per employee -- compared to around $40,770 for Infosys, $35,270 for Wipro and $35,156 for Tata Consultancy Services.

So despite the apparent relief, there is no doubt that many Satyamites are still feeling uncertain -- something that Mahindra and his team must be well aware of as acquisitions are not something new to them.

Yet, here are some examples of the mistakes companies -- even great ones -- make during M&As. One major fallout of M&As is often the flight of top-quality people.

According to The McKinsey Quarterly, if key employees don't feel that they have been kept in the loop after a merger, they will probably start updating their resumes. Competitors understand that your employees don't know whether they have a job or, if they do, where it will be located, where they fit into the new company's structure, how much pay they will receive, or how their performance will be measured.

A top HR executive recounts how the due diligence that his team was asked to do in an M&A deal was restricted to straightforward data -- headcount, pay, outstanding legal cases and so on. No effort was made to understand the skills and effectiveness of the people of the acquired company, how they worked and related to each other and how to deal with the problems of cultural integration.

As a result, after the merger, the management was perpetually in a fire-fighting mode, dealing with HR issues instead of devoting time to business operations.

Corporate history is replete with examples of how ignoring the people-aspect can be disastrous.

Look at America's largest merger -- the AOL-Time Warner deal.

A clash of cultures set the stage for a spectacular corporate collapse, with AOL executives lording it over their Time Warner counterparts who felt they were being acquired by brash, young interlopers. Just three years later, nearly all the top executives behind the merger had resigned.

The AOL-Time Warner deal was initially described as a marriage made in heaven. Three years later, however, the description changed to a marriage between a teenager and a middle-aged banker.

Vineet Nayyar, Tech Mahindra's CEO, has also described the Satyam deal as a marriage made in heaven. It will remain that way if decisions about management structure, key roles, reporting relationships, layoffs, restructuring and other career-affecting aspects of the integration are made, announced and implemented immediately.