Small can be beautiful when trying to keep customers

'As news of change leaks, there can be feelings of distrust and anxiety'

Why does a small company so often provide a much better service to its customers than a major corporation? Given the resources available to any large company, one would expect the opposite to be true.

Why does a small company so often provide a much better service to its customers than a major corporation? Given the resources available to any large company, one would expect the opposite to be true.

That assumption is, presumably, what inspired Barclays to launch an advertising campaign promoting the fact that it is a big bank, just as it shut hundreds of rural branches, decided to charge customers for using a cash machine, handed its CEO a massive pay rise and found thousands of angry customers protesting outside the condemned branches.

Big, in that case, was not beautiful, and undoubtedly quite a few customers have taken their custom elsewhere.

The hullabaloo over Barclays exposed a modern dilemma faced by managers - how to expand their business swiftly enough to retain market share while managing the process of change to ensure customers and employees stay with the company. This is an increasingly important challenge as the pace of mergers, acquisitions and corporate restructuring accelerates. The Institute for Management says there has been a substantial increase over the last three years in the number of businesses going through profound change.

All of us have instances of a once-loved company turning from trusted friend to faceless monster. My example involves an insurance broker. When I first obtained home insurance the company was a one-woman band, named after the founder, and she answered the phone. The firm was "incorporated" into a rival, then taken over - by which time she had left - and finally swallowed by a national chain.

The contrast could not be more stark. Some years ago, when I was buying a house, I needed an insurance policy within hours. One phone call was enough - there was a personal relationship and the necessary document was faxed over in minutes. Fast forward to the present and a query about an insurance claim turns into a Kafkaesque voyage into the company phone-holding system. I am transferred to one calling centre, then another; no one knew my name or had details of the case, even with the now mandatory reference number.

This impression of "small firm good, big firm bad" was strengthened when I phoned the loss adjuster - total number of directors: three - to be told by a PA she had chased up the brokers not once, but three times.

In a perfect world, every manager would be delighted if a PA could show such initiative, whether they employed two people or 2,000. But, unlike computer systems, human capital cannot be "absorbed", "relocated" or "re-engineered" without causing some disruption.

This issue is usually forgotten when companies merge. The executives are focused on the deal and ensuring their ranking in the power hierarchy. Shareholders want to know whether the deal will boost future returns. Trade unions are worried about redundancies. So who worries about the workers left to carry on? The answer, shows a study, is no one, at least until it is too late. Sue Cartwright and Cary Cooper, academics at University of Manchester Institute of Science and Technology's school of management, believe the issue is often overlooked. They say takeovers are associated with high levels of uncertainty and stress because long-standing employee-employer relationships are often discarded. This comes at the exact time when managers - buoyed on the adrenalin that comes with a successful deal - are looking for greater employee loyalty, flexibility, co-operation and productivity.

If we assume staff motivation and contentment are key to running a business, particularly one with a customer interface, then to put as much effort into ensuring employees are as happy with the result as shareholders is essential.

The Manchester professors have tried to compile a guide to best practice for achieving staff satisfaction. Their major contribution is to urge managers to take the thought process back a step. Rather than cobble together a human resources strategy once the deal is done, they recommend including that element into the decision whether to do the deal at all. Understandably, some managers would recoil at such a notion, saying it was tantamount to giving employees a "stakeholder" role in a merger. If workers were genuinely involved, this would mean giving them a veto over a deal, they may argue.

Certainly, there are practical problems with letting staff below director level in on a secret before the deal is agreed. Takeover proposals have to be shrouded in some secrecy to prevent them turning into open bidding wars.

But this process has two main weaknesses. First, it excludes from the decision-making process the people who could spot a potential problem, human resources managers.

Not only can they identify "people issues" accountants and lawyers could miss, but they would highlight problems and areas that might be a barrier to integration. Second, they can begin to ameliorate difficulties that arise as news of change leaks and feelings of distrust and anxiety mount.

Senior managers should not resist this. A survey by the Institute of Management found restructuring often did not lead to the benefits that were probably heralded as the reward for change. Almost half the 781 members polled thought key skills and knowledge had been lost, compared with 27 per cent who thought the opposite. A total of 42 per cent thought their firm was now "in limbo".

More than half of directors at CEO, chairman and MD level thought productivity, flexibility and participation had increased. But junior managers believed those elements had deteriorated.

These extraordinary findings alone should be a stimulus for companies to involve staff more closely in corporate restructuring. However unpalatable it may be, it is better than knowing half your customers are lost in the phone-holding system.

* 'HR Know-how in Mergers and Acquisitions', by Sue Cartwright and Cary Cooper. Published by IPD at £18.95

* Hamish McRae is on holiday