After the Deluge: Designing EHS Organizations for Post-Merger CompaniesJul 17th, 2016 | By Scott Nadler / Michael Bittner | Category: Featured Articles
Here’s a shocker: Managing more people takes more people than managing fewer people.
To put it more elegantly, larger, more complex organizations are not intrinsically more efficient and easier to manage than smaller, simpler ones.
That might not seem like a particularly brave, innovative, or even surprising statement. But in all too many corporate transformations, EHS organizations are force-fit into precisely the flawed logic of “bigger, more complicated, but cheaper.” EHS is assumed to be one of those overhead functions that can offer up “synergies,” the dreaded euphemism for headcount reduction. When staff cuts occur, EHS needs to step up both efficiency and effectiveness, not trade one for the other. EHS leaders must deliver the value their company needs within the budget and organizational envelope that it wants.
And another shocker: Mergers and acquisitions change companies, their business priorities, resources, and means of work. EHS leaders may find that the strategies, programs, and people that worked so well in the past have now become ineffective or insufficient or irrelevant post-merger.
To create leaner, more effective EHS organizations, organizations that support the new and changing business circumstances that occur after a complicated transaction, EHS leaders often need to rethink the vision, scope, and expression of their EHS organization. This places a premium on an already-challenging question: how do you design the EHS organization for a post-merger company?
Avoid the Tempting Mistakes
No surprises: mergers are tough. This isn’t a dinner party where the biggest problem is keeping the two families apart, containing the obnoxious relatives and stretching the alcohol budget. This goes well beyond drawing up the tables and assigning seats. There will be some winners, some losers, and massive uncertainty for all.
While each transaction is different, we know from experience that there are real temptations facing EHS leaders. These temptations are understandable. But they need to be resisted. In other words:
- Don’t wait for guidance. You won’t get it.
- Don’t hide under the table; management consultants and number crunchers will move on without you.
- Don’t model your organization around the capabilities of the people who currently work for you. Some of them will leave while others join, leading to a cycle of endless revisions.
- Don’t assume that an org chart is an organization. The org chart reflects the assigned duties of the department’s staff. It doesn’t express the strategic priorities, programs, and processes that bring the organization to life.
To overcome these potential mistakes, seize the initiative and tackle the need for organizational change in the early days of post-merger integration planning. Reflect, design, rip apart, and start over. Only by moving forward can you overcome the temptations and develop an EHS organization that fits current business needs and accommodates future change.
Ask the Tough Questions
Designing a new EHS organization is a hard business requiring hard questions. Start by asking yourself and others:
- What will the new company really be like?
- How will the company change? Which facilities and operations will be expanded, closed, or relocated?
- What risks matter to the new organization? Are past assumptions and priorities still relevant or is it time for a new approach, a leaner framework, a lighter hand?
- How will EHS services be requested and delivered?
- What transitional issues need to be managed now, but should recede with time?
- Who will be responsible for legacy agreements, liabilities, and commitments?
- Should EHS be organized along geographies or product lines or internal divisions?
The answers to these questions (and the conversations they spawn) lay the foundation for the updated EHS organization.
A Patented Process: Ready, Aim, Fire!
Designing or modifying an EHS organization is a left brain/right brain exercise involving both science and intuition. Because you’re unlikely to nail it on the first draft, adopt an iterative mind set. Take your best shot based on what you can figure out, work quickly, and modify as you go.
Your design activities should follow a 4-step process covering the following key areas:
The order matters. Starting with strategy and ending with people creates an EHS function that is aligned with the company’s business needs and priorities, is designed to meet the company’s commitments and challenges, and is deployed to support that strategy. The end result: a leaner, more effective EHS organization. Going backwards — starting with the people who already work for EHS and developing an organization, programs, and processes around their capabilities — is easier to do, but seldom works. It leads to a wealth of independent programs and initiatives, many of which have an optional “nice to have” flavor. But it’s unlikely to address the company’s greatest challenges and risks in a systematic, cost-effective manner. Going backwards can also lead to an unexpected organizational change — the person occupying your position.
If you do go in order, what’s included in each step?
Strategy is the organizing vision for the company and EHS. It includes what’s important to the company from customers to compliance, the role of EHS in supporting the company’s vision and purpose, and the ideas for delivering on the company’s commitments. Strategy development should not be viewed as a cut-and-paste from other companies or even earlier versions of your own EHS strategy.
Recognize that changing business conditions may require a strategy tweak or overhaul; companies usually don’t spend billions of dollars on transactions in order to maintain the status quo. A transformed company may have a new business strategy aimed at new products or services, new geographies, new customers (“verticals”), or new cost and price models. Each of these puts pressure on EHS to shift its focus to support the new business strategy — without letting anything important fall off the table.
Before modifying their EHS organization, EHS leaders should ensure that their EHS strategy aligns with the company’s business goals, objectives, and available resources. If gaps are detected, then the strategy should first be adjusted to reflect the company’s future needs before moving on to the subsequent design steps. If it’s not possible to work out the EHS strategy before moving to organizational design, then you’ll need to develop a provisional strategy based on what you believe to be most important to the company and design around that understanding.
Programs & Processes
Implementing the strategy successfully requires a number of key programs and processes that are designed, implemented, repeated, measured, and assured sustainably over time. In EHS, these usually include things like regulatory tracking, risk assessment, obtaining and complying with permits, managing liabilities, training staff, auditing, meeting product stewardship obligations, managing compliance and performance data, etc. The key is ensuring that you focus on the programs and processes you need to implement the strategy, no more and no less.
Develop new programs and procedures where needed to better address the company’s compliance and risk profile. More importantly, streamline the company’s overall EHS program to the greatest extent possible by eliminating unnecessary or outdated programs, procedures, and requirements.
The EHS organization should encompass the roles that need to be filled to support the business, meet the company’s EHS strategy and commitments, and implement the required programs and processes. The new strategy and programs may require dramatically different roles (and working relationships, which is what organization really means) than in the past. All too many companies try to rely on old organizations, often hollowed out by “synergies,” to deliver new programs and priorities, and then wonder why their attempts didn’t work.
To design the new organization, start by defining the essential roles that need to be filled, then develop several working models (org charts) showing possible reporting structures. Review the models with internal stakeholders, revise to reflect comments, and select the most appropriate model. Formally define the roles and responsibilities for each key position. Then move to the next step, where staff appointments are made.
People are the engine that powers the organization. Hopefully, you can “repurpose” many of the existing people from both the acquired and acquiring companies into new roles. The new organization may create new opportunities (e.g. field or site-level people who can move up into higher roles which benefit from their field experience and perspective). Inevitably, some people won’t fit. This is where the “iterative” part may come in. To a certain extent, you can adapt the organization and roles to the people: if you have great technical experts in the wrong place geographically, maybe you can combine geographic roles and subject-matter-expert roles to be able to keep their unique abilities. On the other hand, where there are gaps in geographic coverage or technical expertise, a resource plan should be prepared outlining how to overcome the gaps with reassigned staff, hiring of new staff, or use of consultants and contractors.
Be careful: be too inflexible and you’ll throw away the skills you need to implement the strategy; be too accommodating and you’ll end up with the old organization trying to implement the new strategy, doomed to failure.
To design an appropriate EHS organization then, you need to
- Understand the company’s future business context and strategy.
- Ensure that the EHS strategy supports this vision and is appropriate for the future.
- Determine which core programs and processes are required to support the strategy.
- Define an EHS organization that supports the company’s business priorities, EHS strategy, and core programs and processes.
- Assign people to fill appropriate roles within the new organization.
- Address identified resource gaps.
Blunt ideas, certainly, and not always right for all circumstances, but they’re better than just muddling through. A few words of advice gained from observing others:
- Make the tough decisions now, you won’t get another chance.
- Leap forward and work back if needed, don’t move incrementally forward over months and years.
- Look for the hidden gems, the people and systems that can help you transform performance or accelerate change.
- Simplify the organization and cut out layers — corporate, regional, local.
- Leverage your specialists. Don’t ask them to be bad generalists.
- Consider outsourcing commodity services (e.g., Safety Data Sheet entry, auditing, contaminated site management) so your staff can focus on activities that assure performance and drive future improvement.
When you’ve done all of this, it’s time to put pen to paper. Document your vision for the future EHS organization. Articulate the hypotheses and live with the consequences. This is vastly different than starting with a wiring diagram and hoping it ends up with a building anyone would want to live in.
About the Authors
Scott Nadler is Founding Principal at Nadler Strategies LLC, providing practical strategy and sustainability consulting, facilitation, and executive coaching. Scott is also Program Director with the U.S. Business Council for Sustainable Development, an action-oriented business association using collaborative projects, platforms, and partnerships to develop and implement solutions to sustainability challenges in the U.S. Current programs address ecosystems, energy, materials, and water challenges. Scott’s experience includes sustainability, environment, development, real estate, transportation, regulation, business-to-business (B2B) sales and customer service, and international collaboration. His approach is shaped by 40 years of hands-on experience building, leading, and turning around organizations and supporting senior executives in both the private and public sectors.
Michael Bittner, CPEA, is the Managing Partner for EHS post-merger integration services at Environmental Resources Management (ERM). In this role, he helps clients plan and execute post-merger integration strategies for mergers and acquisitions, develops separation strategies for divestitures, and prepares EHS stand-up plans for corporate spin-offs. In addition to post-merger integration, Mr. Bittner has significant hands-on experience in EHS due diligence, compliance auditing, training, and EHS management systems implementation. He is based in Boston, U.S.A.
Photograph: World Gold 1 by Jhon Casso, Lima, Peru.
Other PMI Articles in the EHS Journal
- EHS Leadership: I’m being acquired…now what? by John D’Agostino and Donna Wiley
- Mergers, Acquisitions, and EHS by Michael Bittner
- Post-merger Integration Challenges in the Agrichem Sector by Michael Bittner, Kristine MacPhee, and Ashley Armstrong