It’s been widely reported that a skilled staff shortage is holding back British businesses from realising their potential. This is especially apparent with the rapid advancement of digital technologies in all sectors, where the skills required to program new applications are now being charged at a premium which few companies can afford.
The matter is becoming more of a concern to certain sectors, such as nursing, engineering and construction, for example. As a result of this, UK businesses are changing their tactics. Instead of hiring relatively expensive skilled staff as and when they are required, we are now seeing a marked trend for businesses opting to buy other companies specifically for their skilled employees.
So, if you feel that your business is struggling to acquire the right staff at the right price, or otherwise you feel that a new team could really take your business in a new, lucrative direction, here’s everything you need to know about this often very profitable acquisition strategy.
A looming crisis
According to a recent global study by PricewaterhouseCoopers (PwC), three-quarters of company chief executives admitted that they troubled by an apparent inability to find the right staff to boost their business. Furthermore, the lack of available staff with just the right skills was affecting companies both large and small, with particularly acute shortages being registered by companies within the engineering, technology, digital, pharmaceutical and financial services industries.
This has, in turn, led to a wave of merger and acquisition (M&A) activity, with as many as one-in-four recent deals being completed primarily to acquire the target business’s roster of skilled staff. In the UK, it was found that some 84 per cent of CEOs listed a skills shortage as a problem area.
And it’s not just in the large-scale UK businesses where this concern is being raised. More than a third (39 per cent) of British SMEs have highlighted a need to employ more specialist staff in order to grow over the next two-to-five years.
Solving the problem
One very high-profile company that has successfully employed an acquisition strategy to solve its ‘skills gap’ is Google, now known under umbrella company Alphabet. In fact, it has been acquiring companies for the highly specialised staff for a very long time, well ahead of the current trend.
In order to produce its popular Maps application, for example, Google acquired a small geodata startup called Keyhole back in 2004. Along with the insights that Google was able to glean from the programs upon which the Keyhole team was working, the software giant also gained access to the services and knowledge of Keyhole founder John Hanke, who went on to drive the development of a product that eventually became Google Earth. What’s more, Google was able to retain Hanke for more than 10 years — something that’s largely unheard of in the disloyal world of Silicon Valley.
Since that time, Google has made a raft of similar staff-based acquisitions. Whenever the company wants to increase or improve its current product offering, or else expand into areas of which it has no experience whatsoever, it buys up interesting startups that it hopes will give it a competitive edge, primarily because of the staff and expertise that come hand-in-hand with the acquisition.
Some of Google’s most well-known and loved products, including Analytics, Docs, Android, Maps and YouTube began life as startups which the search giant acquired at one time or another. And it’s not just the staggering array of products that have come off the back of such acquisitions, but also the staff retention levels that make for the most impressive statistics. Between 2006 and 2014, for example, Google signed up at least 221 startup founders, of which it has retained around two-thirds on a longterm basis. So, how do you retain staff that come part and parcel of an acquisition?
When purchasing a business for its key staff and knowledge, it is imperative that terms are set out from the beginning and that you ensure that the staff are happy to come onboard. Once the takeover or merger is complete, however, the real work of ensuring the staff continue to stay in the longterm really begins. After all, if key staff leave, you’ll lose their knowledge, expertise, influence and connections — and the risk of others following suit also increases during this critical period.
Dealing with different company cultures and blending the two is one of the most difficult aspects involved in any acquisition. Company culture refers to the relationships between the business, its customers and its staff — it also has a lot to do with how managers motivate, reward and develop the staff within the organisation. Therefore, it’s vital that research is undertaken to analyse the differences between the two merging companies, and to formulate a plan to ensure the transition is as smooth as possible by borrowing and improving the best company cultural practices from each organisation. And any changes must be communicated clearly to all and with full transparency.
There are, of course, many different approaches to M&As. Some companies would prefer to relocate the acquired business to its own headquarters, while others would prefer to leave the target organisation to its own devices, operating independently but still bringing in revenue. But as with any major business acquisition, you should plan for every outcome, as the worst thing to do is to think everything will work itself out. Believe us, it won’t — that would be the equivalent of getting married to a complete stranger and saying ‘we’ll get to know each other after the ceremony’.
As we have seen, there’s been a recent trend for buying a rival company in order to plug a widening ‘skills gap’. And while this is a very sound strategy, every business owner going down this route must have adequate planning in place to ensure that the transition period is as smooth as possible. Clear communication and transparency are, therefore, absolutely key — in fact, you’ll find that these two things will be appreciated by everyone within the organisation, from the top down.
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