ROLE OF HUMAN CAPITAL DEVELOPMENT IN MERGERS AND ACQUISITIONS: A

COMPARATIVE ANALYSIS OF LOCAL AND INTERNATIONAL ORGANIZATIONS

STEPHEN SIKENYI NDEGE

23/08163

MFD 015:HUMAN CAPITAL DEVELOPMENT

INDIVIDUAL ASSIGNMENT 3

SUBMITTED TO
DR. ROSE GATHII

AUGUST 2024
 TABLE OF CONTENTS
1.0 INTRODUCTION ......................................................................................................... 2
2.0 HUMAN CAPITAL DEVELOPMENT IN M&AS....................................................... 2
2.1 Theoretical Framework .............................................................................................. 2
2.2 Definition and Significance of Human Capital .......................................................... 1
2.2.1 Knowledge, Skills, and Abilities ......................................................................... 1
2.2.2 Effect on Organizational Performance ................................................................ 2
2.2.3 Role in Strategic Advantage................................................................................ 2
2.3 Key Human Capital Development Interventions ....................................................... 3
2.3.1 Training and Development Programs ................................................................. 3
2.3.2 Team and Intergroup Interventions ..................................................................... 4
2.3.3 Cultural Integration and Orientation ................................................................... 5
2.4 HR’s Role in Enhancing Human Capital During M&As ........................................... 5
2.1.1 Pre-Acquisition HR Due Diligence .................................................................... 5
2.1.2 Post-Acquisition Employee Advocacy ............................................................... 6
2.1.3 Reinforcement of New Culture ........................................................................... 6
3.0 CASE STUDY ANALYSIS ................................................................................................ 6
3.1 Facebook and WhatsApp................................................................................................. 6
2.1.1 Background and Strategic Intent ......................................................................... 6
2.1.2 Human Capital Development Interventions ........................................................ 7
2.1.3 Outcomes and Lessons Learned .......................................................................... 7
3.2 Premier Bank and First Community Bank ................................................................. 8
3.2.1 Overview of the Acquisition ............................................................................... 8
3.2.2 HR Interventions and Integration Strategies ....................................................... 8
3.2.3 Impact on Employee Performance and Organizational Culture ......................... 8
4.0 CONCLUSION AND RECOMMENDATIONS ........................................................... 9
4.1 Conclusion .................................................................................................................. 9
4.2 Recommendations ...................................................................................................... 9
5.0 REFERENCES .............................................................................................................11

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1.0 INTRODUCTION
Mergers and acquisitions (M&As) have become a prevalent strategy for companies seeking
to enhance competitive advantage and achieve growth in an increasingly globalized market.
According to Selden and Colvin (2003), 70-80% of acquisitions fail to create value for
shareholders, largely due to inadequate integration and management of human resources.
These statistics demonstrate the critical role that human capital development plays in the
success of M&As. Effective management of human capital during these transitions can
significantly impact organizational performance, innovation, and competitive advantage
(Schmidt, 2003). Human capital, encompassing the knowledge, skills, and abilities of
employees, is vital to the success of M&As. For instance, Dooley (2000) found that training
and teamwork significantly enhance organizational performance. Additionally, Bontis and
Fitzenz (2002) noted that human capital management contributes to improved organizational
competencies and innovation. These practices are crucial in ensuring that the combined entity
operates effectively and achieves its strategic objectives post-merger (Rizvi, 2011). Rizvi
(2011) emphasizes that investments in human capital through training, development
programs, and cultural integration are essential for smooth transitions and achieving strategic
goals. The direct correlation between human capital management and organizational success
underscores the importance of addressing HR issues in M&As to avoid productivity losses
and cultural clashes (Selden & Colvin, 2003). The purpose of this analysis is to explore how
human capital development interventions affect the outcomes of M&As.

2.0 HUMAN CAPITAL DEVELOPMENT IN M&AS

2.1 Theoretical Framework
Human Capital Theory, first formally articulated by Theodore W. Schultz in 1961 and later
expanded by Gary Becker, posits that investments in education and training enhance workers'
skills and productivity, leading to competitive advantages for organizations (Schultz, 1961;
Becker, 1993). This theory assumes that human capital comprising skills, knowledge, and
abilities; is a critical asset that organizations can leverage to achieve better performance and
growth. Schultz's work emphasized that investing in employees can yield higher returns by

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improving their efficiency and effectiveness, which is especially pertinent in the context of
mergers and acquisitions where integrating diverse human capital is crucial (Schultz, 1961).

In the context of mergers and acquisitions (M&A), Human Capital Theory underscores the
importance of effectively managing and integrating the workforce to realize the strategic
goals of the merger. When organizations merge, the alignment of human capital; such as
skills, knowledge, and cultural fit becomes vital for achieving synergy and maintaining
performance levels. For example, research has shown that successful M&As often hinge on
how well the acquiring and acquired companies integrate their human resources, leveraging
the combined talent to drive innovation and efficiency (Coff, 1997). Thus, understanding and
applying Human Capital Theory can help organizations anticipate and address potential
challenges during the integration phase.

Moreover, applying Human Capital Theory to M&As reveals that firms must focus on
retaining key talent and investing in training to bridge cultural and operational gaps. Studies
indicate that failure to address these aspects can lead to lower-than-expected performance
outcomes post-merger (Cartwright & Cooper, 1993). For instance, a well-managed
integration process that considers employees' capabilities and development needs can
mitigate the risks associated with M&A and enhance overall organizational performance.
Therefore, integrating Human Capital Theory into M&A strategies can provide a framework
for optimizing human resources to support long-term success (Brewster et al., 2005).

2.2 Definition and Significance of Human Capital

2.2.1 Knowledge, Skills, and Abilities

Human capital encompasses the knowledge, skills, and abilities (KSAs) of individuals that
enable them to perform tasks efficiently. According to Shamsi Rizvi (2011), human capital
includes the knowledge and skills acquired through education and experience, which are
essential for economic productivity (Rizvi, 2011). For instance, Safaricom, Kenya’s leading
telecommunications company, invests heavily in training programs to enhance its employees'
technical skills and management capabilities, ensuring that they stay ahead in the competitive
telecom sector (Rizvi, 2011). Similarly, global firms like Google emphasize continuous

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learning and skill development, fostering a culture where employees are encouraged to
innovate and improve their expertise, thereby driving organizational success (Rizvi, 2011).

2.2.2 Effect on Organizational Performance

The effect of human capital on organizational performance is significant. Rizvi (2011)
highlights that organizations with strong human capital often experience enhanced
productivity and profitability due to their employees' skills and competencies. For example,
Kenyan banks such as KCB invest in employee training and development to improve service
quality and operational efficiency, resulting in higher customer satisfaction and better
financial performance (Rizvi, 2011). Internationally, companies such Microsoft have shown
that investments in human capital led to increased innovation and market share,
demonstrating the positive correlation between skilled employees and overall company
success (Rizvi, 2011). Lin, Hung, and Li (2006) observe that U.S. banking firms with strong
human resource capabilities report better outcomes from mergers and acquisitions,
demonstrating how effective HR practices can drive organizational performance. The ability
to leverage and integrate human capital effectively leads to greater operational efficiencies
and competitive advantages.

2.2.3 Role in Strategic Advantage

Human capital plays a crucial role in achieving strategic advantage by differentiating a
company from its competitors. Rizvi (2011) asserts that firms leveraging their human capital
effectively can gain a competitive edge through enhanced innovation and operational
efficiency. For instance, Safaricom's strategic use of its skilled workforce in developing new
technologies like M-Pesa has provided it with a significant competitive advantage in the
Kenyan mobile payments market (Rizvi, 2011). On a global scale, companies like Apple have
used their human capital to drive technological advancements and maintain their market
leadership, highlighting the strategic value of investing in employee capabilities (Rizvi,
2011). Khan et al, (2020) asserts that firms with aligned human capital and strategic goals
can achieve superior performance in mergers and acquisitions, as evidenced by studies in
emerging economies (Khan et al., 2020). This alignment of human resources with strategic

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objectives ensures that organizations can effectively navigate competitive challenges and
seize growth opportunities.

2.3 Key Human Capital Development Interventions

2.3.1 Training and Development Programs
Training and development programs are essential for enhancing employee skills and ensuring
organizational growth. In Kenya, Safaricom invests heavily in staff development through its
"Safaricom Academy," offering various training modules to improve technical skills and
leadership capabilities. This initiative has been linked to increased productivity and employee
retention (Rizvi, 2011). Internationally, Google’s "Googleplex" provides a robust training
program with opportunities for continuous learning and professional growth. This approach
helps in fostering innovation and maintaining a competitive edge (Schmidt, 2003). Both
examples demonstrate how targeted training programs can significantly impact
organizational performance by developing employees' skills and competencies.

Effective training programs contribute to organizational success by addressing skill gaps and
promoting continuous improvement. For instance, Kenya Airways implements extensive
pilot and crew training programs to ensure safety and efficiency. This investment in human
capital is crucial for maintaining operational standards and enhancing customer satisfaction
(Rizvi, 2011). Similarly, the German multinational Siemens conducts global training
initiatives that focus on technical skills and leadership development, which are critical for
maintaining its technological edge and market position (Selden & Colvin, 2003). These
examples illustrate the importance of aligning training programs with organizational goals to
achieve strategic objectives.

Training programs must adapt to the evolving needs of the organization and its employees. In
Kenya, the banking sector, exemplified by KCB Bank's training programs, emphasizes
upskilling employees to handle advanced banking technologies and regulatory changes. This
approach ensures that employees remain competitive and proficient in their roles (Dooley,
2000). On a global scale, IBM’s continuous learning initiatives cater to emerging
technologies and market trends, supporting the company's innovation and leadership (Bontis

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& Fitzenz, 2002). Both local and international examples highlight the need for dynamic
training programs that address current and future skill requirements.

2.3.2 Team and Intergroup Interventions

Team and intergroup interventions are crucial for enhancing collaboration and resolving
conflicts within organizations. In Kenya, the integration of teams from different departments
at Equity Bank through structured team-building activities has been shown to improve
communication and teamwork (Rizvi, 2011). Internationally, the multinational Unilever uses
intergroup workshops to address cultural differences and foster collaboration among global
teams, leading to improved project outcomes and employee satisfaction (Schmidt, 2003).
These interventions are essential for creating a cohesive work environment and aligning team
efforts with organizational goals.

Implementing effective team and intergroup interventions can lead to enhanced

organizational performance. For instance, the successful integration of newly merged teams
at Safaricom involved team-building exercises and conflict resolution workshops, which
significantly improved team dynamics and performance (Selden & Colvin, 2003). In
addition, the merger between East African Breweries and Serengeti Breweries involved team-
building activities to bridge cultural differences and improve operational efficiency (Lebedev
et al., 2018). Similarly, the global tech giant Microsoft uses intergroup interventions to
address challenges in cross-functional teams, leading to increased efficiency and innovation
(Dooley, 2000). These practices demonstrate the positive impact of structured interventions
on team collaboration and overall productivity.

Thus, addressing intergroup conflicts through targeted interventions can improve

organizational effectiveness. For example, the introduction of cross-departmental projects at
KCB Bank aimed at bridging gaps between different functional areas resulted in enhanced
cooperation and project success (Bontis & Fitzenz, 2002). Internationally, IBM's use of
conflict resolution training and team-building initiatives has been effective in managing
intergroup disputes and fostering a collaborative work culture (Schmidt, 2003). Both local
and global examples highlight the importance of addressing intergroup conflicts to maintain a
harmonious and productive work environment.

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2.3.3 Cultural Integration and Orientation
Cultural integration and orientation are essential for merging organizations to align values
and practices. In Kenya, the merger of Family Bank and BBC Bank involved extensive
cultural orientation programs to align the differing organizational cultures and ensure a
smooth transition (Rizvi, 2011). Internationally, the acquisition of Hutchison Essar by
Vodafone required a comprehensive cultural integration strategy to blend the diverse
organizational cultures effectively (Selden & Colvin, 2003). These efforts are crucial for
achieving synergy and maintaining operational efficiency post-merger.

Successful cultural integration involves clear communication and shared values. For instance,
after the merger of CFC Stanbic and Kenya’s Stanbic Bank, extensive orientation programs
were conducted to align employees with the new organizational culture and values (Rizvi,
2011). Similarly, the global integration of cultural practices at Google focuses on blending
different organizational cultures to create a unified and productive work environment
(Dooley, 2000). Effective cultural integration ensures that employees adapt to new
organizational norms and work towards common objectives.

The cultural orientation programs help in managing employee expectations and reducing
resistance to change. In Kenya, orientation initiatives at the newly merged Co-operative Bank
of Kenya facilitated the alignment of employees with the bank's vision and operational
procedures (Selden & Colvin, 2003). Internationally, the cultural orientation process at
Siemens during its global expansion helped employees understand and embrace the
company’s core values, leading to improved employee engagement and performance (Bontis
& Fitzenz, 2002). These examples underscore the importance of cultural orientation in
managing change and fostering a cohesive organizational culture.

2.4 HR’s Role in Enhancing Human Capital During M&As

2.1.1 Pre-Acquisition HR Due Diligence
Pre-acquisition HR due diligence involves assessing the target company's human resources to
identify potential issues that could impact the merger. For instance, Safaricom's acquisition of
M-Pesa from Vodafone involved extensive HR due diligence to evaluate cultural fit and
employee capabilities (Rizvi, 2011). This included reviewing employee skills, compensation
structures, and management practices. Similarly, Vodafone's acquisition of Hutchison Essar

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required a comprehensive talent assessment to ensure alignment with its strategic goals
(Rizvi, 2011). Effective due diligence helps mitigate risks by uncovering potential HR
challenges early, thereby facilitating smoother integration post-acquisition (Rizvi, 2011).

2.1.2 Post-Acquisition Employee Advocacy

Post-acquisition employee advocacy is crucial for maintaining morale and engagement. In
Kenya, Equity Bank’s acquisition of the Bank of Kenya emphasized employee
communication to address concerns and ensure a seamless transition (Rizvi, 2011). The
regular updates and transparent communication helped manage employee anxiety and
resistance. On an international scale, Vodafone’s integration of Hutchison Essar involved
frequent webcasts and direct communication from top executives, which alleviated
uncertainties among employees (Rizvi, 2011). Such advocacy not only fosters trust but also
enhances employee retention, which is vital for achieving merger success (Rizvi, 2011).

2.1.3 Reinforcement of New Culture

Reinforcing a new culture post-merger involves blending organizational values and practices
to create a unified corporate identity. For example, when CMC Motors in Kenya merged with
Simba Corporation, HR played a key role in integrating diverse corporate cultures through
workshops and team-building activities (Rizvi, 2011). Internationally, the merger of Daimler-
Benz and Chrysler faced significant cultural challenges, requiring HR to focus on aligning
corporate values and practices through extensive cultural integration programs (Rizvi, 2011).
Effective culture reinforcement helps in reducing conflicts and establishing a cohesive work
environment, essential for the long-term success of mergers and acquisitions (Rizvi, 2011).

3.0 CASE STUDY ANALYSIS

3.1 Facebook and WhatsApp
2.1.1 Background and Strategic Intent
The acquisition of WhatsApp by Facebook in 2014 was a strategic move to consolidate its
dominance in the messaging and media sector (Abidi, 2024). Facebook, operating in the
social media and digital communication space, saw WhatsApp as a direct competitor with a
significant market presence (Metz, n.d.). This horizontal acquisition aimed to eliminate
competition and expand Facebook's user base, leveraging WhatsApp's impressive growth
metrics-over 500 million Monthly Active Users (MAUs) at the time of acquisition (Koetsier,

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2018). Facebook's motivation for the $19 billion acquisition was to neutralize a potential
threat and integrate WhatsApp's extensive user base into its ecosystem (Jabura, 2021).
Therefore, by integrating WhatsApp, Facebook sought to strengthen its position against
emerging rivals and consolidate its foothold in the digital communication market (Nigam,
2020).

2.1.2 Human Capital Development Interventions

Initially, WhatsApp's team operated largely independently, maintaining their unique culture
and practices (Purtill, 2018). However, tensions arose as Facebook sought to implement its
own corporate strategies and revenue models, such as introducing advertising on WhatsApp,
which clashed with WhatsApp's commitment to remaining ad-free (Purtill, 2018). Facebook's
efforts to align WhatsApp with its operational practices led to friction and dissatisfaction
among WhatsApp employees, highlighting the difficulties of merging distinct organizational
cultures. However, following the acquisition, Facebook implemented several human capital
development strategies to integrate WhatsApp's workforce and enhance operational
efficiency. One key intervention was the alignment of organizational cultures, which
involved harmonizing the work environment and management practices between the two
companies (Osmanski, 2021). Facebook focused on retaining WhatsApp's core team by
offering competitive compensation packages and fostering an inclusive work culture that
respected WhatsApp’s existing practices. Additionally, Facebook provided training programs
to ensure smooth transitions and enhance skills that were aligned with its broader corporate
goals (Kumar, 2019).

2.1.3 Outcomes and Lessons Learned

The acquisition led to substantial growth in Facebook’s user engagement and market reach,
particularly in developing regions where WhatsApp had a strong presence (Pariag & Brecht,
2017). By leveraging WhatsApp’s user base, Facebook significantly increased its global
footprint and integrated advanced messaging capabilities into its platform (Sandvine, n.d.).
However, challenges included managing cultural integration and retaining talent from
WhatsApp, highlighting the importance of effective human capital strategies in mergers
(Investorrelations.com, 2021). The experience underscores the need for careful planning and
execution in human capital management to achieve successful mergers.

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3.2 Premier Bank and First Community Bank
3.2.1 Overview of the Acquisition
Premier Bank, Somalia's largest commercial bank, acquired a 62.5% stake in Kenya’s First
Community Bank for $21.6 million in March 2023. This acquisition, approved by the
Competition Authority of Kenya (CAK) and the Central Bank of Kenya (CBK), aims to
bolster First Community Bank’s capital base, which had been struggling to meet regulatory
requirements (Alushula, 2023; Njeru, 2023). The acquisition is expected to enhance the
financial stability of First Community Bank, allowing it to address its previous capital
inadequacies and expand its market presence (Premier Bank, 2023). This strategic move by
Premier Bank highlights its intent to strengthen its regional influence and capitalize on
emerging market opportunities in Kenya (Nation Media Group, 2023).

3.2.2 HR Interventions and Integration Strategies

The integration of Premier Bank and First Community Bank involved several HR
interventions aimed at aligning organizational cultures and enhancing operational efficiency.
Premier Bank implemented a comprehensive integration plan, including cross-cultural
training programs to address differences in corporate cultures and work practices (Alushula,
2023). Additionally, Premier Bank established a joint HR team to oversee the integration
process, focusing on harmonizing employee benefits, aligning compensation structures, and
standardizing performance management systems (Njeru, 2023). These efforts were crucial in
minimizing employee resistance and ensuring a smooth transition, which is essential for
achieving the strategic goals of the merger (Premier Bank, 2023).

3.2.3 Impact on Employee Performance and Organizational Culture

The merger has had a significant impact on employee performance and organizational culture
at both banks. For First Community Bank, the acquisition has led to an improved capital base
and operational support, which in turn has boosted employee morale and job security (Nation
Media Group, 2023). Premier Bank’s investment in training and development has facilitated
skill enhancement among employees, contributing to better performance outcomes
(Alushula, 2023). However, integrating diverse organizational cultures has posed challenges,
with some employees experiencing difficulties adapting to new corporate norms and
practices (Njeru, 2023).

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4.0 CONCLUSION AND RECOMMENDATIONS
4.1 Conclusion
Human capital development plays a pivotal role in the success of mergers and acquisitions
(M&As), as it directly influences organizational performance, innovation, and strategic
advantage. This comparative analysis reveals that effective human capital management,
including training, cultural integration, and team interventions, is essential for achieving
successful M&A outcomes. The case studies of Facebook-WhatsApp and Premier Bank-First
Community Bank highlight that organizations that invest in human capital development
during M&As are better positioned to navigate challenges, foster collaboration, and maintain
operational efficiency, ultimately driving long-term growth and competitive advantage.

The significance of human capital in M&As cannot be overstated, as it serves as a critical

asset for aligning the strategic objectives of merging entities. The analysis underscores that
firms prioritizing human capital integration, through targeted interventions like pre-
acquisition HR due diligence and post-acquisition employee advocacy, experience smoother
transitions and higher employee retention rates. These findings align with Human Capital
Theory, which emphasizes the need for continuous investment in employee skills,
knowledge, and abilities to enhance productivity and organizational success during mergers
and acquisitions.

In conclusion, the success of M&As hinges on the effective management and development of
human capital. Organizations that focus on integrating diverse human resources, reinforcing
new cultural values, and providing continuous learning opportunities are more likely to
achieve strategic synergies and maintain competitive advantages. The analysis indicates that
both local and international firms can benefit from adopting robust human capital
development strategies during M&As, thereby ensuring that the combined entity operates
effectively and meets its strategic goals.

4.2 Recommendations
Organizations should prioritize comprehensive training and development programs to equip
employees with the necessary skills and knowledge for post-merger integration. This includes
offering tailored training modules that address both technical competencies and leadership
capabilities, ensuring that employees are well-prepared to meet the challenges of the newly

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merged entity. Additionally, ongoing learning opportunities should be provided to foster
innovation and adaptability, ultimately enhancing the organization's competitive edge in the
marketplace.

To facilitate effective cultural integration, organizations should implement structured cultural

orientation programs that align the values and practices of the merging entities. This includes
conducting workshops, team-building activities, and continuous communication to bridge
cultural gaps and foster a unified corporate identity. That is, proactively addressing potential
cultural conflicts and ensuring that employees are aligned with the new organizational
culture, firms can reduce resistance to change and promote a harmonious work environment,
which is crucial for the success of the merger.

Lastly, organizations should strengthen their HR due diligence processes before and after
mergers to identify potential human capital challenges and opportunities. This involves
conducting thorough assessments of the target company’s workforce, including their skills,
compensation structures, and cultural fit. Post-merger, HR should focus on employee
advocacy through transparent communication, addressing concerns, and reinforcing the new
corporate culture.

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